when do losses loom larger than gains abstract in defining limits to loss aversion novemsky and kahneman 2005 offer important new data and a needed summary of appropriate ways to think about loss aversion in this comment to novemsky and kahneman s article the authors consider the new empirical results that involve probabilistic buying and selling suggesting caution in generalizing the results to nonprobabilistic commerce the authors expand novemsky and kahneman s summary by exploring two critical constructs that help define the boundaries of loss aversion emotional attachment and cognitive perspective emotional attachment alters loss aversion by moderating the degree to which parting with an item involves a loss whereas shifts in cognitive perspective explain why items typically viewed as a loss are given more or less weight the goal is to use these constructs to characterize more specifically contexts in which losses loom larger than gains and to suggest specific ways that research into loss aversion could evolve

monetary policy housing and heterogeneous regional markets we quantify the importance of heterogeneity for monetary policy using a new heterogeneous agent var havar model that integrates national monetary financial markets with regional housing markets via the mortgage rate although the havar model has linear regional vars its aggregate impulse responses exhibit two nonlinearities 1 time variation stemming from aggregation over heterogeneous regions and 2 state dependence on initial economic conditions in regions thus monetary policy has long and variable lags because monetary transmission depends on the extent and nature of regional heterogeneity which both vary over time the model is estimated with data for u s regions from 1986 to 1996 and simulated to show how coastal housing booms might influence the efficacy of monetary policy

monopolistic competition increasing returns to specialization and output persistence abstract devereux et al economics letters 1993 41 57 61 showed that introducing together imperfect competition and increasing returns to specialization into real business cycle rbc type models results in making output more persistent than the underlying technology shocks we carry out a simple generalization of their model which clearly disentangles the two features and show that the added persistence is actually because of the increasing returns to specialization

regional dimensions of the australian business cycle dixon r and shepherd d regional dimensions of the australian business cycle regional studies this paper deals with the identification of and explanations for co movement in regional business cycles using employment data for australian states and territories regions it shows that both raw growth rates and the deviations from a hodrick prescott trend reflect noise in the series as well as any cycle but that both can be manipulated so as to reveal their cyclical components it is found that growth rate models are dominated by noise whereas the hodrick prescott filter allows identification of the cyclical features of interest the extent of co movements in cyclical fluctuations in employment amongst the regions can be explained by regional industry structure and size of region dixon r and shepherd d hodrick prescott hodrick prescott

cliometrics and time series econometrics some theory and applications the paper discusses a range of modern time series methods that have become popular in the past 20 years and considers their usefulness for cliometrics research both in theory and via a range of applications issues such as spurious regression unit roots cointegration persistence causality structural time series methods including time varying parameter models are introduced as are the estimation and testing implications that they involve applications include a discussion of the timing and potential causes of the british industrial revolution income convergence and the long run behaviour of english real wages 1264 1913 finally some new and potentially useful developments are discussed including the mildly explosive processes graphical modelling and long memory

the disparity between willingness to accept and willingness to pay measures of value psychologists have long argued that people are much more averse to a loss than attracted to an equivalent gain this behavior termed loss aversion has been formalized by kahneman and tversky 1979 in their reformulation of expected utility theory prospect theory in prospect theory the utility function is replaced by a value function that evaluates changes in income from the current level increases in income are weighted by a relatively small marginal utility decreases in income are weighted by a much larger marginal utility in effect the value function implies that a kink in the relationship between utility and income occurs at the initial income or reference point and that the slope of the utility function for losses in income is steeper than it is for gains in a recent paper knetsch and sinden 1984 report a series of experiments that demonstrate the existence of a large disparity between willingness to accept wta and willingness to pay wtp measures of value they argue that the psychological theory of loss aversion explains this difference economic theory would suggest that individuals who exhibit a large disparity between wta and wtp are perhaps underperceiving the value of gains or overperceiving the value of losses are behaving in an irrational manner and will consequently achieve a lower level of well being than if they behaved in a true utility maximizing manner this would in contrast to loss aversion usually imply near equal values for wta and wtp see willig 1976 further documentation of a larger than expected disparity between wta and wtp has been obtained in surveys asking for the value of a variety of public goods for example cummings brookshire and schulze 1986 document six

a reference price theory of the endowment effect abstract the common finding that selling prices exceed buying prices the so called endowment effect is typically explained by the assumptions that consumers evaluate potential transactions with respect to their current holdings and that the owners of a good regard its potential loss to be more significant than nonowners regard its potential acquisition in contrast to this pain of losing account the authors propose that the endowment effect reflects a reluctance to trade on terms that appear unfavorable with respect to salient reference prices in six experiments and eight more summarized in appendixes the authors show that manipulations that reduce the gap between valuations and reference prices reduce or eliminate the endowment effect these results suggest that the endowment effect is often best construed as an aversion to bad deals rather than an aversion to losing possessions

do we really need to change the decision maker counterintuitive escalation of commitment results in real options contexts a robust finding in the escalation literature termed as the preference effect is that involvement in the period 1 initial project assessment decision increases the tendency for decision makers to stick with a losing course of action during the period 2 project reassessment decision the proposed solution is to bring in a new decision maker in period 2 across multiple studies we show that providing period 1 information in real options format increases the tendency for decision makers to view period 2 focal event information as both more negative and more important consequently such decision makers exhibit less escalation in period 2 i e exhibit behavior opposite to the preference effect this suggests that in real option contexts not only do we not need to bring in a new decision maker but also counterintuitively it is beneficial to retain the same decision maker in situations where escalation is likely to occur this paper was accepted by yuval rottenstreich judgment and decision making

agricultural land values and the value of rights to future land development we investigate the inuence of fu ture land development on current agricultural land values from a theoretical model of land markets we derive a reduced form expression for agricultural land values in terms of observable variables this result dictates the speci cation of our econometric model and we nd strong sup port for the model in an application to new york state the estimated model together with a spa tial interpolation algorithm is used to generate a surface of estimated development rights values for orange county this approach overcomes several problems that arise with the use of stan dard appraisal methods to value conservation easements jel q24

the effects of potential land development on agricultural land prices abstract we conduct a national scale analysis of the determinants of agricultural land values the theoretical basis for the study is a spatial city model with stochastic returns to future land development the empirical model of agricultural land prices is estimated with a cross section on approximately three thousand counties in the contiguous us the results provide evidence that option values associated with irreversible and uncertain land development are capitalized into current farmland values for each county we decompose the current agricultural land value into components measuring rents from agricultural production and rents from future land development

cross sectional heterogeneity and the persistence of aggregate fluctuations abstract the microevidence indicates that small firms grow faster than big firms i argue that this relationship between the expected growth rate of a firm and its size may provide a microfoundation for the well known high degree of persistence of shocks to aggregate output the logic goes as follows almost any shock tends to temporarily alter firms incentive to invest in growth thereby leading to a reallocation of firms across size categories if small firms grow faster than big ones the impact effect of the shock on aggregate output is gradually absorbed but as fast growing small firms become big and start to grow at the lower rate of big firms the rate at which the shock is absorbed decreases over the adjustment path as a result shocks are absorbed yet at a very low decreasing rate which induces long memory in aggregate output i argue that this transmission mechanism may reconcile the microevidence with the observed degree of aggregate persistence it requires changes in neither the number of firms in the market nor the rate of technological progress it is merely the result of the cross sectional heterogeneity that we observe in real economies

real convergence empirical evidence for latin america this article investigates the real convergence of 17 latin american countries to the us economy for the period 1950 to 2011 time series methods are used to test stochastic and convergence these methods include the possibility of one or two structural changes the results show that when endogenous structural changes are considered several latin american countries exhibit stochastic convergence nevertheless real convergence to the us is found only for three latin american countries chile costa rica and trinidad and tobago with these countries also presenting evidence of stochastic and convergence

inherent rule variability in consumer choice changing rules for change s sake the present research demonstrates that consumers tend to vary their use of decision rules independent of option and set characteristics in five experiments increased choice of a particular option e g lower price brand name or compromise option was associated with relatively decreased choice of that same generic option on occasions that followed results indicate that this inherent rule variability is not an effect of background contrast but instead relates to consumers favorable valuation of decision change itself this research implies that the idea of contingent decision making applies not only to decision outcomes but also to decision processes

seller beware how bundling affects valuation abstracthow does bundling affect valuation this research proposes the asymmetry hypothesis in the valuation of bundles consumers demand more compensation for the loss of items from bundles compared with the loss of the same items in isolation yet they express lower willingness to pay for items added to bundles compared with the same items purchased separately this asymmetry persists because bundling causes consumers to perceive multiple items as a single inseparable gestalt unit thus consumers resist altering the whole of the bundle by removing or adding items six studies demonstrate this asymmetry across judgments of monetary value studies 1 and 2 and dis satisfaction study 3 moreover bundle composition the ability of different items to create the impression of a whole moderates the effect of bundling on valuation study 4 and the need to replace missing items i e restoring the whole mediates the effect of bundling on compensation demanded for losses study 5 finally the a

system estimation of panel data models under long range dependence abstracta general dynamic panel data model is considered that incorporates individual and interactive fixed effects allowing for contemporaneous correlation in model innovations the model accommodates general stationary or nonstationary long range dependence through interactive fixed effects and innovations removing the necessity to perform a priori unit root or stationarity testing moreover persistence in innovations and interactive fixed effects allows for cointegration innovations can also have vector autoregressive dynamics deterministic trends can be featured estimations are performed using conditional sum of squares criteria based on projected series by which latent characteristics are proxied resulting estimates are consistent and asymptotically normal at standard parametric rates a simulation study provides reliability on the estimation method the method is then applied to the long run relationship between debt and gdp supplementary materials for this article are available online

long memory and persistence in aggregate output abstract we examine persistence in u s aggregate output by estimating fractionally integrated arima models these models provide better low frequency approximations to the wold representation than previous stochastic specifications and earlier results on the importance of a permanent component emerge as special cases we find evidence of long memory which induces persistence though this long memory need not be associated with a unit root our point estimates indicate that macroeconomic shocks while persistent are distinctly less persistent than many earlier studies suggest however confidence intervals associated with the long run response are quite wide

let s get real a factor analytical approach to disaggregated business cycle dynamics this paper develops a method for analysing the dynamics of large cross sections based on a factor analytic model we use law of large numbers arguments to show that the number of common factors can be determined by a principal components method the economy wide shocks can be identified by means of simple structural var techniques and that the parameters of the unobserved factor model can be estimated consistently by applying ols equation by equation we distinguish between a technological and a non technological shock identification is obtained by minimizing the negative realizations of the technology shock empirical results on 4 digit industrial output and productivity for the u s economy from 1958 to 1986 show that 1 at least two economy wide shocks both having a long run effect on sectoral output are needed to explain the common dynamics 2 although the technological shock accounts for at least 50 of the aggregate dynamics of output it cannot by itself explain dynamics at business cycle frequencies 3 sector specific shocks explain the main bulk of total variance but generate mainly high frequency dynamics 4 both the technological and the non technological component of output show a peak for positive sectoral comovements of output at business cycle frequencies 5 technological shocks are strongly correlated with the growth rates of the investment in machinery and equipment sectors and their inputs many interesting questions about cyclical fluctuations and economic growth can be answered only by studying the dynamic behaviour of sectoral variables when data contain information on time for a large cross section of sectors traditional econometric techniques used in the macroeconomic literature such as vector autoregressive var and vector autoregressive moving average varma models are not appropriate since they require the estimation of too many parameters this is why new methods which allow for the reduction of the parameter space need to be developed the objective of this paper is both methodological and descriptive at the methodological level we develop a simple framework for the dynamic analysis of large cross sections the basic model is a dynamic factor analytic model as in sargent and sims 1977 the sectoral variables are decomposed into two unobservable components a common component driven by macroeconomic shocks and a purely sectoral component when

long memory and aggregation in macroeconomic time series this paper explores the interaction between long memory and aggregation results are derived which link the possibly fractional orders of integration of the aggregate series with those of the underlying series when the aggregation is either cross sectional or temporal in discrete or continuous time these results provide empirically testable hypotheses that are examined using six u k macroeconomic series a semiparametric method is found to be broadly consistent with the implications of the theory but fully parametric arfima models show considerable variation each series appears to be integrated of an order of between one and one and a half

aggregation persistence and volatility in a macro model we introduce firm heterogeneity into the standard monopolistically competitive real business cycle rbc model the fundamental equilibrium path is derived and the time series properties of aggregate gdp are studied analytically although firms productivities are subject to temporary shocks the aggregate process displays a surprising novel form of nonlinearity and long memory which had not been built into the model at the outset this aggregate gdp turns out to have very different properties from log linear time series models such as auto regressive ar models and their extensions it displays very strong persistence which ends abruptly with a sudden change of tendency giving its autocorrelation function acf an s shape although persistent it is mean reverting unlike the everlasting memory of unit root processes its volatility is of a greater order of magnitude than that of any of its components so small micro shocks can generate large macro fluctuations it is also characterized by long asymmetric cycles of random lengths increased monopoly power tends to reduce the amplitude and increase the

inflation targeting an indirect approach to assess the direct impact it is quite difficult to assess the benefits of inflation targeting it since its immediate effect will be on inflation expectations an unobserved variable due to lack of comprehensive data on inflation expectations most studies so far concentrated on the impact of it either on observable variables like output unemployment and inflation or compared post it surveys of itcountries with nonit countries in our study we focus on a yet unanswered question i e how the expectations change with the adoption of it we suggest that heterogeneous inflation expectations lead to long memory in actual inflation and it if successful should decrease this persistence by concentrating the public s expectations toward the announced target empirical results confirm our hypothesis with a reduction in inflation memory after the adoption of it in almost all eight developed countries in our sample

aggregation and simple dynamics the koyck geometric lag or ar 1 specification is a commonly proposed behavioral model sometimes after differencing the distribution of koyck lag or ar 1 coefficients across agents in an economy is shown to be completely identified just from the dynamic behavior of aggregate macroeconomic data aggregate testable implications of an economy composed of agents having koyck lags or ar 1 models are provided extensions to higher order and time varying lags are discussed aggregate u s consumption data are shown to support the hypothesis that some consumers have random walk consumption while the rest have arima 1 1 0 consumption with widely varying ar coefficients copyright 1994 by american economic association

are output fluctuations transitory according to the conventional view of the business cycle fluctuations in output represent temporary deviations from trend the purpose of this paper is to question this conventional view if fluctuations in output are dominated by temporary deviations from the natural rate of output then an unexpected change in output today should not substantially change one s forecast of output in say five or ten years our examination of quarterly postwar united states data leads us to be skeptical about this implication the data suggest that an unexpected change in real gnp of 1 percent should change one s forecast by over 1 percent over a long horizon

capitalization of exclusive agricultural zoning into farmland prices development in agricultural areas coughlin et al 1981 this exclusive agricultural zoning differs from traditional rural zoning in that it limits development and is often strictly enforced economists have argued that conceptually agricultural zoning lowers land values by restricting non farm development and three recent empirical studies support the hypothesis knaap 1985 vaillancourt and monty 1985 nelson 1988 but in fact economic theory predicts both positive and negative price effects distributed differentially among farmland parcels depending on parcel characteristics the purpose of this research is to test the hypothesis that the price effect of exclusive agricultural zoning varies with the characteristics of parcel subject to the regulations the research results suggest that economists investigating the land price effects of zoning should use methodologies that distinguish between positive and negative price effects deriving from parcel characteristics

on the power of dickey fuller tests against fractional alternatives abstract we examine the properties of dickey fuller unit root tests under fractionally integrated alternatives and find that these tests have quite low power

valuing future development rights the costs of conservation easements while theory strongly suggests that restricting development rights should reduce land prices empirical evidence of this effect has been hard to obtain largely based on this difficulty legislation governing the tax benefits that easement donors may receive is periodically challenged we collect data on 131 land transactions in south central wisconsin including 19 cases of development restricted parcels when we use the whole sample to estimate the impact of conservation easements we replicate the results of nickerson and lynch nickerson c j lynch 2001 the effect of farmland preservation programs on farmland prices american journal of agricultural economics 83 2 341 351 finding a negative but statistically insignificant effect however we then show that when the sample is appropriately restricted to a more homogenous group of land parcels our ability to detect an effect increases dramatically in particular for vacant agricultural land we find a statistically significant negative impact of conservation easements that ranges up to 50 of land values

on the dynamics of international inflation abstract we investigate the dynamic properties of inflation in 20 oecd countries with a novel approach based on the autocorrelation function we find evidence in favor of long memory and nonlinearity linear autoregressive models are shown to be misspecified

the effect of giving it all up on valuation a new look at the endowment effect in three experiments we show that the endowment effect the tendency to demand more money for relinquishing owned goods than one is willing to pay for the same goods fails to emerge when sellers are not fully depleted of their endowment this finding is incompatible with prospect theory s account of the effect as stemming primarily from aversion to loss relative to the individual s current state we suggest a new account of the endowment effect as reflecting the human aversion to giving it all up rather than simply an aversion to incurring any loss relative to the status quo experiments 1 and 2 show the effect employing a pricing paradigm experiment 3 examines what constitutes all in the giving it all up effect this paper was accepted by uri gneezy behavioral economics

real business cycle models and the forecastable movements in output hours and consumption the authors study the movements in output consumption and hours that are forecastable from a vector autoregression and analyze how they differ from those predicted by standard real business cycle models they show that actual forecastable movements in output have a variance about one hundred times larger than those predicted by the model the authors also find that forecastable changes in the three series are strongly positively correlated with each other on the other hand for parameters whose implications are plausible in other respects the model implies that output consumption and hours should not all be expected to move in the same direction copyright 1996 by american economic association

an econometric analysis of land development with endogenous zoning zoning is a widely used tool to manage residential growth estimating the effect of zoning on development however is difficult because zoning can be endogenous in models of land conversion we compare three econometric methods that account for selection bias in a model of land conversion a jointly estimated probit logit model propensity score matching and regression discontinuity our results suggest that not accounting for selection bias leads to erroneous estimates after correcting for selection bias we find that zoning has no effect on a landowner s decision to subdivide in a rural wisconsin county

choice based on reasons the case of attraction and compromise effects building on previous research this article proposes that choice behavior under preference uncertainty may be easier to explain by assuming that consumers select the alternative supported by the best reasons this approach provides an explanation for the so called attraction effect and leads to the prediction of a compromise effect consistent with the hypotheses the results indicate that 1 brands tend to gain share when they become compromise alternatives in a choice set 2 attraction and compromise effects tend to be stronger among subjects who expect to justify their decisions to others and 3 selections of dominating and compromise brands are associated with more elaborate and difficult decisions

persistence and cycles in historical oil price data abstract this paper deals with the analysis of two observed features in historical oil price data in particular persistence and cyclicity using monthly data from september 1859 to october 2013 we observe that the series presents two peaks in the spectrum one occurring at the long run or zero frequency and the other at a cyclical frequency these features can be well described in terms of a long memory model that incorporates both peaks in the spectrum it is found that the order of integration at the zero frequency is about 0 6 and the one at the cyclical frequency is substantially smaller of about 0 3 with the length of the cycles being approximately of about 74 periods months which is consistent with the length suggested by the business cycle theory

multiple unit holdings yield attenuated endowment effects previous endowment effect experiments have examined circumstances in which people encounter a single unit of a good e g one chocolate we contrast single unit treatments with multiple unit treatments in which participants encounter several units of a good e g five chocolates we observe endowment effects of typical magnitude for singleton holdings but attenuated endowment effects for multiple unit holdings moreover endowment effects consistently arise for singletons even as the definition of a unit is altered for instance participants holding one piece of chocolate show an endowment effect of standard size but so do participants holding one box of chocolates yet the box contains about 20 individual pieces of chocolate and participants given that many separate pieces show a substantially attenuated endowment effect we thus propose the property of unit dependence the definition of a unit can change but contingent on any given definition a pronounced endowment effect may emerge for singletons but not multiples this paper was accepted by teck ho decision analysis

distributed lags aggregation and compounding some econometric implications this paper considers the aggregation of discrete distributed lags in the spirit of houthakker and johansen well known distributed lag models in econometrics are shown to arise from aggregation across heterogeneous microeconomic units the technique of analysis is based on the statistical theory of compound distributions the paper goes on to consider how consistently estimated macro distributed lags may be decomposed into two components which represent respectively the microeconomic response and the heterogeneity in that response related problems of identification and estimation and the interpretive value of the approach are also discussed and illustrations provided

modeling and predicting the cboe market volatility index abstract this paper performs a thorough statistical examination of the time series properties of the daily market volatility index vix from the chicago board options exchange cboe the motivation lies not only on the widespread consensus that the vix is a barometer of the overall market sentiment as to what concerns investors risk appetite but also on the fact that there are many trading strategies that rely on the vix index for hedging and speculative purposes preliminary analysis suggests that the vix index displays long range dependence this is well in line with the strong empirical evidence in the literature supporting long memory in both options implied and realized variances we thus resort to both parametric and semiparametric heterogeneous autoregressive har processes for modeling and forecasting purposes our main findings are as follows first we confirm the evidence in the literature that there is a negative relationship between the vix index and the s p 500 index return as well as a positive contemporaneous link with the volume of the s p 500 index second the term spread has a slightly negative long run impact in the vix index when possible multicollinearity and endogeneity are controlled for finally we cannot reject the linearity of the above relationships neither in sample nor out of sample as for the latter we actually show that it is pretty hard to beat the pure har process because of the very persistent nature of the vix index

fractional beta convergence abstract unit roots in output an exponential 2 rate of convergence and no change in the underlying dynamics of output seem to be three stylized facts that cannot go together this paper extends the solow swan growth model allowing for cross sectional heterogeneity in this framework aggregate shocks might vanish at a hyperbolic rather than at an exponential rate this implies that the level of output can exhibit long memory and that standard tests fail to reject the null of a unit root despite mean reversion exploiting secular time series properties of gdp we conclude that traditional approaches to test for uniform conditional and unconditional convergence suit first step approximation we show both theoretically and empirically how the uniform 2 rate of convergence repeatedly found in the empirical literature is the outcome of an underlying parameter of fractional integration strictly between 1 2 and 1 this is consistent with both time series and cross sectional evidence recently produced

measuring the effects of preservation on farm profits in a continuous treatment setting abstractdespite billions of dollars of public appropriations to state purchase of development rights pdr programmes there has been limited evaluation of the effects of these investments on the economic performance of preserved farms this article estimates dose response functions to evaluate the effects of enrolment in new jersey s pdr programme on farm profitability the generalized propensity score method in a continuous treatment setting is used to address selection bias arising from voluntary programme participation treatment effects are measured across treatment levels to determine whether farm profitability is affected differently across levels of programme participation our findings reveal that relative to unpreserved farms profit per acre tends to increase along lower treatment levels the profit per acre of preserved farms in the 1 40 treatment range is on average 407 higher than that of unpreserved farms in the full sample positive profit differentials averaging between 317 and 472

monopolistic competition technology shocks and aggregate fluctuations abstract we analyze a real business cycle rbc model in which aggregate production exhibits increasing returns to specialization in conjunction with imperfect competition and free entry and exit of firms over the business cycle we show that the requirements of both high variance and high persistence in technology shocks that have been noted by critics of rbc theory may arise from the assumptions of perfect competition and constant returns to scale rather than from the general proposition that real productivity shocks can significantly account for the business cycle

the effect of farmland preservation programs on farmland prices government agencies in urbanizing areas are increasingly utilizing purchase and transfer of development rights programs to preserve farmland and protect local farm economies this article tests the effect of development restrictions imposed by permanent easement sales on farmland sales prices using maryland data we correct for selectivity bias due to the voluntary nature of these programs in estimating hedonic sales equations although preserved parcels actual land values are lower the effect of the restrictions is not statistically significant these findings may encourage additional participation in preservation programs or justify reductions in the easement prices paid by agencies copyright 2001 oxford university press

the deaton paradox in a long memory context with structural breaks this article contributes to the permanent income hypothesis pih and excess consumption smoothness debate in the context of fractional integration we show that the excess consumption smoothness result is a consequence of the quarterly data frequency commonly employed in the empirical work in fact the i 1 hypothesis is rejected for the income process with monthly data in favour of a fractional integration order lower than 1 moreover if a structural break is taken into account we observe a substantial reduction in the degree of consumption smoothness especially after the break found in 1975

a note on the empirics of the neoclassical growth model this paper shows that the widely used log linearization of the neoclassical model of growth implies a relevant loss in terms of the ability of the model in replicating the patterns of convergence of an economy to its equilibrium level