the litigious plaintiff hypothesis case selection and resolution the process through which cases are selected for litigation cannot be ignored because it yields a set of lawsuits and plaintiffs that is far from a random selection either of potential claims or of potential claimants we present a theoretical framework for understanding the operation of this suit selection process and its relationship to the underlying distribution of potential claims and claimants the model has implications for the trial rate and the plaintiff win rate at trial our empirical analysis using data on over 200 000 federal civil litigations yields results that are strongly consistent with the theory

computing the constant elasticity of variance option pricing formula this paper expresses the constant elasticity of variance option pricing formula in terms of the noncentral chi square distribution this allows the application of well known approximation formulas and the derivation of a whole class of closed form solutions in addition a simple and efficient algorithm for computing this distribution is presented this paper shows that the constant elasticity of variance cev formula can be expressed as a function of the noncentral chi square distribution a simple and efficient algorithm for computing this distribution is presented approximations to this distribution can be used to estimate accurately the cev formula when the computation of the exact solution is problematic section i discusses theories and some evidence on the association between volatility and price level section ii presents the particular kind of relationship assumed by the cev model and reviews empirical evidence on the model section iii shows that the cev formula can be expressed in terms of the noncentral chisquare distribution a simple algorithm for computing this distribution is derived in section iv section v presents some special closed form solutions to this distribution finally section vi shows that an approximation to the cev formula can be used when the exact solution converges slowly i relationship between volatility and price level several theoretical arguments imply an association between stock price and volatility geske 11 black 3 and christie 5 consider the effects of financial leverage on the variance of the stock an increase in the stock price reduces the debt equity ratio of the firm and therefore reduces the variance of the stock s returns black hypothesizes that price changes may also affect volatility through their impact on operating leverage in addition he proposes a reverse causal relationship whereby an increase in the volatility of stocks causes prices to fall in rubinstein s 171 displaced diffusion model the relation between price and volatility of returns depends on the firm s asset mix and debt equity ratio empirical evidence supports the hypothesis that volatility changes with stock price schmalensee and trippi 19 examining just over a year of weekly data on six stocks find a strong negative relationship between stock price changes and changes in implied volatility black 3 using over ten years of data on thirty stocks finds that a given proportional increase decrease in stock price is

pretrial bargaining with asymmetric information unilateral versus bilateral payoff relevance author affiliation amy farmer amyf walton uark edupaul pecorino ppecorin cba ua edu acknowledgment we would like to thank akram temimi and two anonymous referees for providing helpful comments on the article 1 introductionasymmetric information is a leading explanation for bargaining failure and the role of asymmetric information has been extensively analyzed in the civil litigation literature 1 most of this literature concerns information that has bilateral payoff relevance in the sense that the information in question affects the expected payoff at trial of both the plaintiff and defendant when there is bilateral payoff relevance trials may be predicted in the equilibrium of the bargaining game regardless of whether the informed or uninformed party makes the offer in this article we analyze information that has unilateral payoff relevance meaning that it affects the expected payoff of one of the two parties to the dispute but not the other as an example suppose the plaintiff has private information on her risk preferences this affects her expected payoff at trial but not the defendant s when there is unilateral payoff relevance there are never inefficient trials in the equilibrium of the game where the informed party makes the offer 2 however there may still be costly disputes in the equilibrium of the game in which the uninformed party makes the offer examples of information with bilateral payoff relevance include information on the probability that the plaintiff will prevail at trial and information on the amount of the judgment to be awarded at trial in the event the plaintiff is victorious in both cases the information clearly affects the expected payoff of both the plaintiff and defendant at trial and these are the types of informational asymmetry considered most often in the literature what type of information has only unilateral payoff relevance one example mentioned above is information on risk preferences farmer and pecorino 1994 swanson and mason 1998 and heyes rickman and tzavara 2004 all examine asymmetric information on risk preferences within the context of the screening model in which the uninformed party makes the offer 3 in each case trials are predicted in the equilibrium of these models as long as trials are not too costly for the participants however other types of information also have only unilateral payoff relevance a large literature on the ultimatum game has provided convincing evidence that under certain circumstances individuals will express a preference for being treated fairly 4 this preference may be expressed specifically by the percentage of her own court costs a player is willing to concede to her opponent via his settlement offer 5 since this preference is not observable and presumably differs across individuals the proposer in a screening game must decide how much of the joint surplus of settlement he will attempt to extract without knowledge of how low he can go before triggering a rejection suppose the judgment is 100 000 and the plaintiff s court costs are 30 000 a plaintiff without a taste for fairness will accept an offer of 70 000 rather than proceed to trial a plaintiff with a taste for fairness might as an example accept no less than 90 000 the defendant then must choose between an offer of 90 000 and 70 000 without knowledge of whether the other party has a taste for fairness or not the defendant will make the low offer if he believes it will be accepted with a sufficiently high probability if the plaintiff does indeed have a taste for fairness she will reject the low offer and a trial will result presumably a mechanism along these lines explains the persistence of disputes in ultimatum game experiments another example of information with unilateral payoff relevance is the degree of litigiousness which can be modeled as differences in perceived court costs on the part of the plaintiff eisenberg and farber 1997

domestic support and border measures for processed horticultural products in horticultural markets trade barriers often apply to the processed products whereas domestic support applies to farm produced raw commodities here we assess the effects of such trade barriers and domestic support by simulating the effects of policy reform on global processing tomato markets which are faced with modest processed product tariffs and high domestic support in the european union eu both protection and eu subsidy drive down world welfare but we find that reducing import tariffs for tomato products would yield greater effects on markets and larger welfare impacts outside europe than would reductions in eu domestic support copyright 2008 oxford university press

the american put option valued analytically an analytic solution to the american put problem is derived herein the hedge ratio and other derivatives of the solution are presented the formula derived implies an exact duplicating portfolio for the american put consisting of discount bonds and stock sold short the formula is extended to consider put options on stocks paying cash dividends a polynomial expression is developed for evaluating these formulae values and hedge ratios for puts on both dividend and nondividend paying stocks are calculated tabulated and compared with values derived by numerical integration and binomial approximation as with european options evaluating an analytic formula is more efficient than approximating the stock price process or the partial differential equation by binomial or finite difference methods finally applications of this american put solution are discussed

the analytic valuation of american options no analytic solutions exists for the valuation of american options written on futures contracts and foreign currencies for which early exercise may be optimal this article formulates the american option valuation problem in economically and mathematically meaningful ways this enables us to derive valuation formulas for american options the properties associated with the optimal exercise boundary are examined and a numerical technique to implement the valuation formulas is presented article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the degree of decoupling of area payments for arable crops in the european union in 1992 the common agricultural policy cap of the european union eu significantly changed direction in the arable crop sector with the so called macsharry reform this reform which reduced cereal intervention prices eliminated output payments for oilseeds and introduced per hectare compensatory payments and a compulsory set aside requirement attached to these payments implied a significant change in the policy incentives to produce in 1999 intervention prices were cut further bringing them closer to world market levels as well as aligning payments of cereals and oilseeds the most recent reform in

the causes of bargaining failure evidence from major league baseball abstract final offer arbitration in major league baseball provides an ideal setting for examining the empirical regularities that are associated with bargaining failure since final offers salaries and player statistics which provide the fundamental facts for the case are all readily available using data for players eligible for arbitration for 1990 93 we conduct a wide variety of empirical tests regarding the relationship between aggressive offers and arbitration outcomes we find that aggressive offers by players trigger arbitration and that more aggressive offers are associated with inferior financial outcomes in arbitration overall clubs appear to outperform players in arbitration unexpectedly high or low offers are less common for players who have previously been through arbitration which suggests that learning occurs our results are inconsistent with simple one sided asymmetric information models of arbitration the results are more consistent with an optimism model or a model in which so

cross subsidization due to inframarginal support in agriculture a general theory and empirical evidence a general theory of cross subsidization due to inframarginal support is developed two sources of output distortion are identified exit deterrence and extramarginal output some firms would not be in business without the subsidy cost savings due to declining average costs are always greater than the losses incurred where price equals marginal cost moreover it is theoretically possible for inframarginal subsidies to expand output more than equivalent fully coupled subsidies empirical analysis of u s dairy subsidies isolates these components of cross subsidization and finds distortions from inframarginal support to be substantial with implications for trade negotiations dispute settlement and policy formulation copyright 2008 oxford university press

legal expenditure as a rent seeking game legal expenditures at a civil trial constitute an interesting type of rent seeking contest in civil litigation there is a natural interaction between the objective merits of the case and the outcome of the contest institutions such as fee shifting do not generally have a counterpart in other rent seeking contests the endogenous decision to participate in the rent seeking contest corresponds to the decision by the plaintiff to bring a case and the decision by the defendant to defend it the desirability of fee shifting is very sensitive to the value of the parameter which describes the legal technology

the saga of the american put abstract the american put is one of the oldest problems in mathematical finance we review the development of the relevant literature over the last 40 years today the mainstream computational problems have been solved satisfactorily and the target of research is shifting towards the development of further insights into the value of timing investment decisions

pricing and hedging path dependent options under the cev process much of the work on path dependent options assumes that the underlying asset price follows geometric brownian motion with constant volatility this paper uses a more general assumption for the asset price process that provides a better fit to the empirical observations we use the so called constant elasticity of variance cev diffusion model where the volatility is a function of the underlying asset price we derive analytical formulae for the prices of important types of path dependent options under this assumption we demonstrate that the prices of options which depend on extrema such as barrier and lookback options can be much more sensitive to the specification of the underlying price process than standard call and put options and show that a financial institution that uses the standard geometric brownian motion assumption is exposed to significant pricing and hedging errors when dealing in path dependent options

an analytic approximation for the american put price black and scholes 1 derived the pricing equation for a european put when the stock price follows geometric brownian motion for this same case merton 5 derived the pricing equation for an american put with infinite time to maturity brennan and schwartz 2 rubinstein and cox 7 and parkinson 6 have developed numerical solutions for the price of an american put numerical solutions are expensive and do not provide much intuition naturally an analytic solution would be much preferred unfortunately pricing the american put requires solving a formidable and presumably intractable boundary value problem

the selection hypothesis and the relationship between trial and plaintiff victory this paper develops implications of the selection hypothesis of priest and klein for the relationship between trial rates and plaintiff win rates i find strong evidence for the selection hypothesis in estimated relationships between trial rates and plaintiff win rates at trial across case types and judges i then structurally estimate the model on judge data yielding estimates of the model s major parameters the decision standard the degree of stake asymmetry and the uncertainty parameter for each of three major case types contracts property rights and torts

further results on the constant elasticity of variance call option pricing model the black scholes 4 call option model is a member of the class of constant elasticity of variance call option models proposed by cox 6 while the black scholes model assumes that the volatility or instantaneous variance of return is constant through time the other members of the class allow the volatility to change with the stock price this property is of interest because empirical evidence suggests that returns to common stock are heteroscedastic and also that volatilities implied from the black scholes model and market prices of call options are not constant

understanding economic policy reform one of the eventual consequences of the global debt crisis was a wave of market oriented economic reforms this paper discusses the state of our knowledge on the political economy of this process why were inefficient and often unsustainable policies maintained for so long why are so many governments reforming now after decades of adherence to policies of an opposite kind have the reformers internalized the correct lessons from the east asian experience finally are there any helpful rules for reformers to follow in guiding their policies through complicated political terrain

the american put option and its critical stock price we derive an expression for the critical stock price for the american put we start by expressing the put price as an integral involving first passage probabilities this approach yields intuition for merton s result for the perpetual put we then consider the finite lived case using 1 the fact that the put value ceases to depend on time when the critical stock price is reached and 2 the result that an american put equals a european put plus an early exercise premium we derive the critical stock price we approximate the critical stock price function to compute accurate put prices kim 1990 jacka 1991 and carr jarrow and myneni 1992 showed that the american put price is equal to the corresponding european put price plus an integral representing the early exercise premium however to use their approach one needs to know the critical stock price which may be defined in three equivalent ways 1 it is the value of the stock price at which one is indifferent between exercising and not exercising the put

was there policy reform evolution of eu domestic support for processed fruits and vegetables policy reform in agricultural markets is often associated with less government regulation and expenditures or a shift towards more efficient interventions the european union eu adopted major policy changes for processed fruits and vegetables in 2001 and again in 2008 and we employ a simulation model to examine the effects of the three policy regimes in place before and after each of the changes our analysis incorporates the heterogeneity of processing firms in the eu and considers how they responded to the different policy regimes simulation results indicate that the eu subsidies increased eu tomato production by 3 8 for the regime that began in 2008 and 9 1 for the regime that began in 2001 compared to no subsidies the policy regime that was in place from 2001 through 2007 led to the greatest distortions in global processing tomato markets in part because it directed more of the benefits to eu growers and less to eu processors and consumers thus changes in 2001 reformed policy by redistributing gains within the eu while changes in 2008 reformed policy by reducing distortions in global markets

taxes and subsidies in vertically related markets in the framework of a two country two good partial equilibrium model where one of the commodities the bulk commodity is an intermediate input in the production of the second good the processed good we assume that the government wishes to transfer income to both bulk commodity and processed good producers our analysis is concerned with efficient redistribution the instruments are subsidies or taxes and there is an opportunity cost of public funds we use the targeting principle to characterize the set of optimal subsidies or taxes applied on both the bulk commodity and the final good in this vertically related market structure the theoretical analysis is illustrated using the example of cereals the bulk commodity and pork and poultry the processed good in the european union

the production effects of agricultural income support policies under uncertainty this analysis decomposes the production impacts of income support programs into wealth insurance and coupling effects under the usual assumptions about preferences the wealth and insurance effects of many support programs increase optimal input levels even for supposedly decoupled programs if the program is coupled in the usual sense then all three effects often act in the same direction it is concluded that studies of trade and domestic policy reform in stochastic environments should consider insurance and wealth effects the derivative conditions required to obtain results are also subjected to scrutiny simulations for an iowa corn producer confirm the comparative statics

disentangling the consequences of direct payment schemes in agriculture on fixed costs exit decisions and output this paper goes beyond orthodox considerations of direct payment effects on agricultural output by highlighting the role of subsidies in affecting individual producers ability to cover fixed costs and in distorting the volume of aggregate production and net trade by implicitly discouraging exits the theoretical model considers both taxpayer and consumer financed decoupled direct payment schemes and compares them to a coupled production subsidy in terms of possible producer responses to direct payments the paper proposes an analytical framework of production decision making in the presence of a stochastic distribution of fixed costs across representative farms the paper shows that decoupled payments in theory can have a larger effect on output than coupled payments the model explicitly recognizes three consequences of domestic support a induce exit or entry b bias production incentives to domestic markets and c cross subsidize export in global markets an empirical model of the u s wheat sector is developed to illustrate the relative potential impacts of coupled versus decoupled payments on output through the effects on a farmer s ability to cover fixed costs and hence exit decisions

trade policy with several goods and market linkages abstract in this paper we demonstrate a substantial role for trade policy in a competitive model finding that a an export subsidy may benefit the exporting country b a voluntary export restraint may benefit the importing country and c a countervailing duty may benefit the importing country even if it has no effect on the foreign price of that good these results are in sharp contrast to the conventional wisdom from two good or partial equilibrium models and are derived in a framework of several goods the pattern of substitution and complementarity across goods or market linkages determines the role for trade policy

implications for food production land use and rural development of the european union s single farm payment indications from a survey of farmers intentions in germany portugal and the uk abstract the 2003 reform of the european union s eu common agricultural policy introduced a decoupled income support for farmers called the single farm payment sfp concerns were raised about possible future land use and production changes and their impact on rural communities here such concerns are considered against the workings of the sfp in three eu member states various quantitative studies that have determined the likely impact of the sfp within the eu and the study countries are reviewed we present the results of a farm survey conducted in the study countries in which farmers responses to a decoupling scenario similar to the sfp were sought we found that little short term change was proposed in the three rather different study countries with only 30 of the farmers stating that they would alter their mix of farm activities furthermore less than 30 of all respondents in each country would idle any land under decoupling of those who would adopt a new activity the most popular choices were forestry woodland and non food crops

pricing american options under the constant elasticity of variance model and subject to bankruptcy this paper proposes an alternative characterization of the early exercise premium that is valid for any markovian and diffusion underlying price process as well as for any parameterization of the exercise boundary this new representation is shown to provide the best pricing alternative available in the literature for medium and long term american option contracts under the constant elasticity of variance model moreover the proposed pricing methodology is also extended easily to the valuation of american options on defaultable equity and possesses appropriate asymptotic properties