From the Editor
Reflecting the diverse concerns of economics in business, this issue’s papers address five apparently- unrelated topics. (In economics, many of us suspect that everything is related to everything else, even if we do not know how.) Each of them— impacts of a housing decline, transfer pricing, personal injury litigation, healthcare, and the future of Japan—are hot topics that will hold their heat indefinitely
Certainly one of the hot topics in the contemporary U.S. economy is the future of the housing market and what a major slowdown would mean to the rest of the economy. In this issue, Jonathan McCarthy and Charles Steindel investigate the sensitivity of aggregate consumption spending to the quantity of residential construction and to house prices, tracing the mechanisms by which spending is affected by the housing market and gauging the magnitude of the effect.
Transfer pricing is a critical issue for many international firms trying to avoid tax liabilities and governments intent on collecting revenues. The opposing interests can be best reconciled by making transfer pricing reflect economic conditions as closely as possible. In his paper, David Broomhall presents an approach that promises to make transfer pricing realistic and therefore acceptable to firms and governments.
Many industries are vulnerable to personal injury litigation. Having a better understanding of what motivates claimants may enable firms to better plan for litigation losses. Frederic C. Dunbar and Faten Sabry conduct an econometric investigation of the likelihood of an injured party taking legal action as a function of conventional economic variables and some that do not fit within the economist’s usual purview. They find that the unconventional variables have the biggest impact.
Consumer-directed healthcare has received a good deal of attention over the past few years as a potential means of making the market for healthcare more efficient and therefore containing its cost escalation. Paul Hughes- Cromwick, Sarah Root, and Charles Roehrig present the issues, obstacles, and opportunities concerning consumer- directed healthcare and explore their implications through a simulation model.
One of the keys to the success of the global economy is the financial health of its key players. Masaharu Takenaka traces the development of Japan’s financial sector through its crisis of the 1990s and its contemporary liberalization and growing strength. He finds that there are powerful reasons to believe that while Japan’s financial sector will continue to reform and strengthen, its composition of asset holdings and capital markets will remain significantly different from that of the United States.
In this issue’s Focus on Statistics, Robert P. Parker describes the innovations in the BLS’ hours and earnings series. New measures have increased the scope and coverage of employees and compensation, thus making these statistics more representative and more useful, both directly and as inputs to other economic statistics. This article also describes other measures taken by BLS to make the Current Employment Statistics survey more accurate and more useful.
There is one book review in this issue. In it, John Goodman—one of the founding members and a past chairman of NABE’s Health Economics Roundtable— reviews Refining Health Care: Creating Volume-Based Competition on Results by Michael Porter and Elizabeth Olmsted Teisberg. In the book, the authors explore why the healthcare market is not more like other markets and describe the means and rewards of restructuring healthcare, largely by encouraging consumer sovereignty.
While this issue does not have two regular features— Focus on Industries and Markets and Economics at Work—they are expected to return in the July issue.
Robert Thomas Crow
rtcrow@comcast.net