As it becomes cheaper to copy and share digital content, vendors are turning to technical protections such as encryption. We argue that if protection is nevertheless imperfect, this transition will generally lower the prices of content relative to perfect legal enforcement. However, the effect on prices depends on whether the content providers use independent protection standards or a shared one, and if shared, on the governance of the system. Even if a shared system permits content providers to set their prices independently, the equilibrium prices will depend on how the vendors share the costs, and may be higher than with perfect legal protection. We show that demand-based cost sharing generally leads to higher prices than revenue-based cost sharing. Users, vendors and the antitrust authorities will typically have different views on what capabilities the DRM system should have. We argue that, when a DRM system is implemented as an industry standard, there is a potential for collusion through technology.

Urban water pricing provides an opportunity to examine whether consumers react to the
shape of supply functions. We carry out an empirical analysis of the influence of price and price
structure on residential water demand, using the most price-diverse, detailed, household-level
water demand data yet available for this purpose. We adapt the Hausman model of labor supply
under progressive income taxation to estimate water demand under non-linear prices. Ours is the
first analysis to address both the simultaneous determination of marginal price and water demand
under block pricing and the possibility of endogenous price structures in the cross section. In
order to examine the possibility that consumers facing block prices are more price-responsive, all
else equal, we test for price elasticity differences across price structures. We find that
households facing block prices are more sensitive to price increases than households facing
uniform marginal prices. Tests for endogenous price structures cannot rule out a behavioral
response to the shape of supply, but suggest that observed differences in price elasticity under
supply curves of varying shapes may result, in part, from underlying heterogeneity among utility
service areas.

A premise of general equilibrium theory is that private goods are rival. Nevertheless, many private goods are shared, e.g., through borrowing, through coownership, or simply because one person’s consumption affects another person’s wellbeing. I analyze consumption externalities from the perspective of club theory, and argue that, provided consumption externalities are limited in scope, they can be internalized through membership fees to groups. Two important applications are to rental markets and “purchase clubs,” in which members share the goods that they have individually purchased.

In this paper we examine how one might systematically model the incidences of property created and enforced by tort law and analyze their effect on economic behavior. We then show how such a model can help provide deeper insights into the law and economics analysis of tort, using as an example the search for a unified approach to assessing compensation for nonpecuniary and pecuniary loss. The paper is organized as follows. In Section 1, we present a legal analysis of the entitlement conferred by tort law. This is then formalized in Section 2 in an economic model of the incidences of ownership defined and enforced by tort law. In Section 3 we show how this perspective on tort law can add to our understanding of the design and function of torts by re-examining the literature on insurance and tort compensation for nonpecuniary loss. We conclude in Section 4 with a summary of how tort law functions to create and protect rights in the bundle of rights that makes up property.

China’s record in reducing rural poverty has been nothing short of spectacular and should be a source of
lessons for other countries. Rural poverty reduction is generally sought in the role of agriculture in
contributing to farm incomes. However, non-farm employment in rural areas can also be a major
contributor. Using detailed household survey data from Hubei province, we simulate the counterfactual of
what rural households’ incomes, poverty, and inequality would be in the absence of access to non-farm
sources of income. Results show that, without non-farm employment, rural poverty would be much higher
and deeper, and that income inequality would be higher as well. We find that education, proximity to
town, neighborhood effects, and village effects are crucial in helping particular households gain access to
these opportunities. We also find that those who stay as pure farmers have non-observable characteristics
that make them much more productive in agriculture, implying positive selection on these characteristics.
Moreover, participation in non-farm activities has a positive spillover effect on household farm
production.

Constructing structural models of educational choice allows to explore design features
for educational programs and to predict how the program would perform in alternative
contexts, for instance when accompanied by new complementary programs. We use the
experience of Progresa, Mexico’s ambitious conditional cash transfer program for
education in poor rural communities, to construct such a model. The impact of transfers
on decisions to enroll in secondary school and to repeat a grade in case of failure is
accurately measured due to randomized treatment in a subset of communities. While
impact measurements of Progresa on educational attainment are available from reduced
form estimates, the structural model allows to decompose the channels of influence in
decision making and to measure their relative importance on observed outcomes. We
measure the gains from a design where future transfers can be credibly committed in
spite of political cycles, and from complementary supply-side programs providing
improved off-school support to students and access to better information about job
opportunities outside the community offered by education.

There has been a lively debate about the potential impact of global climate change
on U.S. agriculture. Most of the early agro-economic studies predict large damages (see,
for example, Richard M. Adams, 1989; Harry M. Kaiser et al., 1993; and Adams et al.,
1995). In an innovative paper Robert Mendelsohn, William D. Nordhaus and Daigee Shaw
(1994) - hereafter MNS - propose a new approach: using the variation in temperature and
precipitation across U.S. counties to estimate a reduced form hedonic equation with the
value of farmland as the dependent variable. A change in temperature and/or precipitation
is then associated with a change in farmland value which can be interpreted as the impact of
climate change. Adams et al. (1998) characterize the hedonic approach as a spatial analogue
approach, and acknowledge that "the strength of the spatial analogue approach is that
structural changes and farm responses are implicit in the analysis, freeing the analyst from
the burden of estimating the e®ects of climate change on particular region-speci¯c crops and
farmer responses." On the other hand, one of the potential disadvantages of the hedonic
approach is that it is a partial equilibrium analysis, i.e., agricultural prices are assumed to
remain constant.1 While year-to-year °uctuations in annual weather conditions certainly
have the potential to impact current commodity prices, especially for crops produced only
in a relatively localized area, (such as citrus fruits which are grown mainly in California
and Florida), changes in long-run weather patterns (i.e., changes in climate) might have a
smaller e®ect on commodity prices because of the greater potential for economic adaptation,
particularly shifts in growing regions.2 The hedonic approach as implemented by MNS
predicts that existing agricultural land on average might be more productive and hence result
in bene¯ts for U.S. farmers.3 The hedonic approach has received considerable attention in our
judgment in part because the conclusions are at variance with those of some other studies that suggest warming will lead to damages and in part because of the new methodology.

Although the approach is appealing, it is at the same time vulnerable to problems related
to misspeci¯cation. Several authors have questioned the particular implementation in MNS (William R. Cline,
1996; Robert K. Kaufmann, 1998; Darwin (1999b); and John Quiggin and John K. Horowitz,
1999). Speci¯cally, they suggest that (i) the hedonic approach cannot be used to estimate
dynamic adjustment costs; (ii) the results are not robust across di®erent weighting schemes;
and (iii) the inadequate treatment of irrigation in the analysis might bias the results. The ¯rst
criticism alludes to the fact that some farmers might not ¯nd it pro¯table to switch to new
cropping patterns given their existing crop-speci¯c ¯xed capital. However, climate change
will occur only gradually and most costs can thus be seen as variable. In this paper we focus
on the latter two points, especially the role of irrigation. Previous comments have raised
theoretical concerns about potential sources of misspeci¯cation related to irrigation. We
provide an empirical test. Once irrigation is accounted for, we show that results also become
robust across weighting schemes or models. Elsewhere we extend the analysis in various
directions: construction and use of climate variables tied more closely to agronomic ¯ndings;
development of more accurate measures of both climate and soil conditions; adjustment
for spatial correlation of the error terms in a hedonic regression; and use of recent climate
scenarios that go beyond the traditional assumption of uniform impacts across regions of
a doubling of greenhouse gas concentrations in the atmosphere (Wolfram Schlenker et al.,
2004). We note here that none of the implied changes in the analysis a®ects the arguments
concerning irrigation discussed in this paper.

We begin the paper by critically reviewing the unitary model (Vermeulen, 2002), which (1) assumes that a single preference represents all agents in the group, or equivalently, that all agents have identical preferences; (2) imposes the choice of a benevolent dictator on the group; (3) assumes the group’s budget to be a single pooled value; (4) does not allow bargaining or negotiation, (5) nor permits knowledge or experience differences between members to lead to the use of different decision-making strategies. The impact of policies affecting group members differentially, for example, cannot be correctly assessed in the unitary model because its use will lead to erroneous welfare inferences (Vermeulen, 2002). Clearly, the need for alternative models is pressing.

In the remainder of this paper we will synthesize the literature across disciplines with a view towards characterizing the shortcomings of current approaches to modeling group decisions. Subsequently we broach a number of issue areas that we believe future research must address to improve our understanding of group decisions and to enhance our ability to model and predict outcomes from such decisions. We then present a conceptual model of group decisionmaking that arose from our discussions and, we feel, synthesizes the multidisciplinary views represented in the workshop. We conclude by proposing a number of specific research questions 3 that we believe should be addressed in the short term.