Vol. 4 No. 2 (2012)

For many decades, economists have lamented the constraints on performing experiments in economics. However, with the birth of experimental economics this perception has changed. This field has developed considerably over the years. Now results from experiments are taken seriously. The experimental literature evolved in three directions: market experiments, game experiments and individual-decision making experiments. Over the years however, experimental methodology has been applied to more complex environments investigating macroeconomic issues and international economics. This paper provides a review of the experimental economics, its ingredients, its promises and skepticism. Further, we provide a review of the experiments that has been carried out in international economics.

The present study examines the role of credit risk in value creation process in banking system of Pakistan. This study here develops a conceptual model with three antecedents to credit risk. These antecedents are loan loss provision, advances, and capital adequacy ratio. The study analyzes the impact of these antecedents on accounting return on equity (ROE) and market return on shares (ROS). The data come from 20 banks listed on Karachi Stock Exchange (KSE) for 2004-2009. The study includes panel data analysis to analyze the relationship between the selected variables. The results of this study expose a minimal role of credit risk in value creation process in banking system of Pakistan. The results further reveal that banks with higher advances in their portfolio are successful in getting the confidence of shareholders.

Researchers have commonly used financial gambles to assess risk preferences, though attitudes regarding monetary gambles may differ from those concerning health risks. Moreover, the conventional measure of risk preference—the Pratt-Arrow coefficient of relative risk aversion—is a point-elasticity suitable only for trivial risks, whereas the risks pertaining to medical treatment—often involving life-ordeath decisions—are quite substantial. Our objective is to examine attitudes toward health risks and the variables that influence those attitudes. In addition to the conventional metric, we employ an alternative measure of risk aversion designed for large-scale risks; the latter is calculated as an arc-elasticity of marginal utility. Both measures are applied to responses from a health preference survey, which incorporates a standard gamble over longevity. Measured risk aversion is then related to health and demographic variables using multiple linear regressions. Our research suggests that tolerance of health risks may be influenced by an endowment effect reflecting the asymmetry of medical information between patients and providers. We also find that the arc-elasticity measure captures more of the significant differences and has a stronger correlation to demographic and socio-economic variables than does the more traditional point-elasticity measure, indicating that the conventional measures of risk aversion are indeed ill suited to large-scale risks such as those involving health. In addition, our results suggest that health-related risk preferences may differ from financial risk attitudes. Although our sample is relatively small and largely homogeneous, these results collectively provide a basis for replication and a justification for additional study on the measurement of risk aversion with regard to health.

As economic growth may reach a point where further socio-economic development is not sustainable due to continual environmental degradation having negative development impact, the paper proposes a methodology for determining global central tendency for the saturation point of economic growth in its impact on sustainable development. The theoretical framework adopts a modified classical growth model, where economic growth is considered a means towards development, just as capital stock constitutes a means towards economic growth. In such a model, the impact of economic growth on sustainable development exhibits diminishing “marginal social productivity”, until development reaches a stationary state , where the impact of growth reaches its climax and any further growth will bring a decline on the level of development. Economic growth is measured by per capita income while selected development indicators measure development. The factors responsible for the diminishing “marginal social productivity” of economic growth are population growth and depreciation rates of capital stock and physical environment. For empirical investigation, econometric studies explored the dependence of various development indicators on per capita income (US$ PPP ) for 99 countries, with a-priori expectation that the development indicators will progress with economic growth at a decreasing rate and reach saturation point. The results revealed that the saturation point or ultimate level of sustainable development is attained at per capita income of $36,400 500 ( PPP ), a level exceeded by 13 percent of the countries. Results also showed that environmental degradation is both a causal factor and consequence of contemporary growth.

The current problems on the aftermath of the global credit crunch left the weakest Euro countries in the turbulence of a debt crisis, which has been spread in five countries (Greece, Ireland, Portugal, Italy and Spain respectively) and raised the question of a Euro zone future survival. The surviving barriers have to do with limitations and restrictions on the single market, the lack of political union and different monetary policy targets. Incentives to secede are also present. However, a possible withdraw of a country would have high cost for all the participants and it could lead to monetary union’s demolition. The costs related with a possible withdraw are high, thus it is difficult for a country to leave a union. In the recent debt crisis, the countries accepted bailouts from their counterparts and international organizations in order to prevent the Euro zone collapse spreading the crisis further. Three possible Euro zone future scenarios are analyzed. The volunteer or not breakup of the union and reintroducing of national currencies, the breakup of the Euro zone to two currencies consisting Optimal Currency Areas (OCAs)is analyzed by using thirteen equally weighted optimum area criteria and the imposition of an interest equalization tax(IET) in order to make the Euro zone a single OCA. The results show that the asymmetries lead to the crisis persists in a possible two Euros area and this scenario cost is higher than union dissolution’s. An IET can help Euro zone in the short time to develop sustainable characteristics.