macroeconomic implications of production bunching factor demand linkages abstract existing empirical evidence suggests that output is more variable than consumption so that production smoothing is not apparently present in this paper we investigate some macroeconomic implications of the proposition that the empirical evidence reflects the presence of some firms in the economy that produce with nonconvex technologies overall when activities are sufficiently complementary and inventory holding is sufficiently costly nonconvexities at the firm level can generate a pattern of output and sales such that the variance of output exceeds that of sales at an aggregate level in this way nonconvexities at the individual firm level may have macroeconomic consequences

scale and productivity measurement under risk the literature on risk and uncertainty gives an important place to studies comparing behavioral and comparative static results obtained under certainty and uncertainty the standard neoclassical theory of the firm however has much more to offer than behavioral results for example the optimizing behavior of the profit seeking firm insures that the degree of the firm s returns to scale can be measured by the ratio of cost to revenue furthermore it is also possible to isolate measures of the rate of technical change for a profit maximizing firm which depend solely upon observed prices and quantities this note demonstrates some of the implications of uncertainty for measuring scale economies and the rate of technical change specifically using a model developed by agnar sandmo 1971 it is demonstrated that under conditions of risk and uncertainty there are generally no measures of the scale elasticity or the rate of technical change which can be derived from observations on prices and quantity without information on either the structure of production or the utility function which underlies sandmo s analy

technology adoption under production uncertainty theory and application to irrigation technology we propose a theoretical framework to analyze the conditions under which a farmer facing production uncertainty due to a possible water shortage and incomplete information will adopt a more efficient irrigation technology a reduced form of this model is empirically estimated using a sample of 265 farms located in crete greece the empirical results suggest that farmers choose to adopt the new technology in order to hedge against production risk in addition we show that the farmer s human capital also plays a significant role in the decision to adopt modern more efficient irrigation equipment

stochastic production and heterogeneous risk preferences commercial fishers gear choices we present a model of fishers gear choice which allows for heterogeneity both in production technology and risk preferences and apply it on a panel of swedish trawlers stochastic revenue functions are estimated and used to predict the mean and standard deviation of revenue for each trip in a random parameters logit model we test if these predicted values explain gear choice a majority of fishers respond positively to increased mean and negatively to increased variability of expected landing values indicating risk aversion but also show a strong tendency to choose the same gear used on the previous trip

inventories rational expectations and the business cycle abstract the simplest macroeconomic models in which markets clear instantaneously and expectations are rational preclude the existence of business cycles that is of serially correlated deviations of output from trend this paper studies one of several mechanisms that can be used to make these so called new classical models produce business cycles the mechanism is the gradual adjustment of inventory stocks two macroeconomic models of inventory holdings are formulated both imply first that current output should be a decreasing function of the stock of inventories and second that inventories once perturbed from equilibrium levels should adjust only gradually these two features are then embedded into an otherwise standard macroeconomic model in which markets clear instantaneously and expectations are rational two principal conclusions are reached first disturbances such as unanticipated changes in money will set in motion serially correlated deviations of output from trend second if desired inventories are sensitive to the real interest rate then even fully anticipated changes in money can affect real variables

estimating risk aversion coefficients for dry land wheat irrigated corn and dairy producers in kansas the risk attitudes of dry land wheat irrigated corn and dairy producers in kansas are examined using the nonlinear mean standard deviation approach results of analyses indicated that dryland wheat and dairy producers are characterized by increasing absolute and increasing relative risk aversion while irrigated corn producers are characterized by constant absolute and increasing relative risk aversion both crop enterprises exhibited constant returns to scale technology while the dairy enterprise exhibited decreasing returns to scale gross farm income was significant and positively related to relative risk aversion

estimation of farmers risk attitude an econometric approach abstract an econometric procedure for estimating arrow pratt coefficients of risk aversion is derived the model of farmers allocating land among different crops and time between leisure and labor allows for testing arrow s hypotheses of decreasing absolute risk aversion and increasing relative risk aversion the empirical results support these hypotheses

inventories stock outs and production smoothing if stock outs are ignored and if demand shocks are additive then optimal behaviour requires that the marginal cost of production mc be equated with the expected marginal revenue of increasing expected sales by one unit emr however with more general demand shocks and still ignoring stock outs the excess of mc over emr has the same sign as the covariance of the slope of the demand curve and the marginal valuation of inventory the equality of emr and mc is also broken by taking account of stock outs even if demand shocks are additive if there is a production lag then taking account of stock outs implies that optimal behaviour will be characterized by production smoothing even if the cost of production is linear two alternative definitions of production smoothing are presented and optimal behaviour in the presence of stock outs displays each type of smoothing it is a well known proposition that a firm producing a storable good under conditions of increasing marginal cost will tend to smooth the time profile of its production relative to the time profile of its sales the incentive to smooth production arises from the fact that the cost function is a convex function of the level of production for a given average level of production average costs can be reduced by reducing the variation in production of course if the cost function is linear in the level of production then this incentive to smooth production disappears however we will demonstrate in this paper that if the possibility of stock outs is explicitly incorporated into the firm s dynamic optimization problem i e if we impose a non negativity constraint on inventories and if there is a lag in production then optimal behaviour can be characterized by production smoothing even if the cost function is linear

acreage decisions under risk the case of corn and soybeans an acreage supply response model is developed under expected utility maximization the resulting framework is used to specify and estimate a system of risk responsive acreage equations for corn and soybeans in the united states particular attention is given to the truncation effects of government price supports on the distribution of corn and soybean prices also a wealth variable is included in the acreage equations the empirical results indicate that risk and wealth variables play an important role in cornsoybean acreage decisions the analysis also shows that cross commodity risk reduction is important in acreage allocation decisions

uncertainty in sales and inventory behaviour in the u s trade sectors this paper investigates uncertainty in sales and inventory behavior for the u s wholesale and retail trade sectors first using a vector error correction model with garch m the authors find that the uncertainty measured by forecast error variance in sales does not affect inventory behavior in both trade sectors second using forecast error variance decomposition and estimated permanent components they observe that the uncertainty may be attributed more to demand shocks than to cost shocks

seasonal solow residuals and christmas a case for labor hoarding and increasing returns in aggregate unadjusted data measured solow residuals exhibit large seasonal variations total factor productivity grows rapidly in the fourth quarter at an annual rate of 16 percent and regresses sharply in the first quarter at an annual rate of 24 percent how much of the total seasonal variation in the measured solow residual can be explained by christmas the answer to this question is surprising with increasing returns and time varying labor effort christmas is sufficient to explain the seasonal variation in the solow residual consumption average productivity and output in all four quarters our analysis of seasonally unadjusted data uncovers important roles for labor hoarding and increasing returns that are difficult to identify in adjusted data prescott 1986 has argued that the variability of solow s residual is a reasonable estimate of the variability of exogenous technology shocks when solow s residual is measured using seasonally unadjusted data for the postwar u s economy it exhibits large seasonal variations growing rapidly in the fourth quarter at an annual rate of 16 percent and falling sharply in the first quarter at an annual rate of 24 percent this paper starts from the premise that it is implausible to attribute seasonal variation of this magnitude to changes in the state of technology we present a model in which all seasonal fluctuations arise from a single demand shift christmas this demand shift together with misspecification of the traditional production function leads to large seasonal variation in the solow residual we consider two candidates for misspecification labor hoarding and external increasing returns to scale even when technological growth is aseasonal either candidate in isolation can induce spurious seasonality in the solow residual our general equilibrium analysis indicates that 1 the economy s seasonal patterns in all four quarters may be a response simply to a fourth quarter consumption demand shift and 2 a combination of labor hoarding and external increasing returns is important for replicating these patterns in aggregate quantity variables for the postwar u s economy since our analysis identifies important roles for labor hoarding and increasing returns these results have implications for nonseasonal macroeconomic models indeed our analysis im

taking stock a critical assessment of recent research on inventories empirical and theoretical aspects of inventory behavior became hot topics in the 1950s and early 1960s no one seemed to notice the tension that was developing between the emerging macroeconomic and microeconomic views of inventories macroeconomists routinely thought of inventories as a destabilizing factor yet the prevailing micro theory viewed inventories as a stabilizing factor it was a fascinating question that was barely explored instead somewhat inexplicably interest in inventories dried up as if inventories were of minor economic significance and little intrinsic interest by the early 1980s then economists once again knew something they had known in the 1950s that inventory investment is of first order importance in business cycles but they were also beginning to realize that the standard production smoothing buffer stock model of inventories was in deep trouble this paper focuses on developments since that realization

what have macroeconomists learned about business cycles from the study of seasonal cycles this paper argues that analysis of seasonal fluctuations can shed light on the nature of business cycle fluctuations the fundamental reason is that in many instances identifying restrictions about seasonal fluctuations are more believable than analogous restrictions about nonseasonal fluctuations the authors show that seasonal fluctuations provide good examples of preference shifts and synergistic equilibria they also find evidence against production smoothing and in favor of unmeasured variation in labor and capital utilization in some industries capacity constraints appear to bind copyright 1996 by mit press

nonparametric test of the expected utility hypothesis a nonparametric test of the expected utility hypothesis is developed in this paper the expected utility hypothesis is shown to hold if there exists a feasible solution to a particular system of linear inequalities furthermore when a feasible solution exists boundaries on the coefficient of absolute risk aversion can be calculated explicitly the test is applied to data on land allocations modeled as choices over lottery sets results contrary to those obtained in many laboratory experiments show that in most cases the expected utility hypothesis cannot be rejected

an mcdm analysis of agricultural risk aversion abstract in modelling farm systems it is widely accepted that risk plays a central role furthermore farmers risk aversion determines their decisions in both the short and the long run this paper presents a methodology based on multiple criteria mathematical programming to obtain relative and absolute risk aversion coefficients we rely on multiattribute utility theory to elicit a separable additive multiattribute utility function and estimate the risk aversion coefficients and apply this methodology to an irrigated area of northern spain the results show a wide variety of attitudes to risk among farmers who usually exhibit decreasing absolute risk aversion and constant relative risk aversion

some empirical evidence on the production level and production cost smoothing models of inventory investment the production smoothing model of inventories has long been the basic paradigm within which empirical research on inventories has been conducted the basic hypothesis embedded in this model is that inventories of finished goods serve primarily to smooth production levels in the face of fluctuating demand and convex cost functions however once we allow for shocks to technology and the costs of producing output firms will also use inventories to shift production from periods in which production costs are relatively high to periods in which production costs are relatively low in this sense inventories can serve to smooth production costs rather production levels in this paper we examine the empirical plausibility of the production level and production cost smoothing models of inventories our basic strategy is to derive and contrast a set of unconditional moment restrictions implied by these models in a way that minimizes the role of auxiliary assumptions regarding market structure and industry demand we find overwhelming evidence against the production level smoothing model and very little evidence against the production cost smoothing mode1 we conclude that the variance of production exceeds the variance of sales in most manufacturing industries because the production cost smoothing role of inventories is quantitatively more important than the production level smoothing role of inventories this abstract was borrowed from another version of this item

indivisible labor lotteries and equilibrium abstract this paper considers an economy where labor is indivisible and agents are identical although the discontinuity in labor supply at the individual level disappears as a result of aggregation it is shown that indivisible labor has strong consequences for the aggregate bahavior of the economy it is also shown that optimal allocations involve lotteries over employment and consumption

the production and inventory behavior of the american automobile industry understanding inventory movements is central to an understanding of business cycles this paper presents an empirical study of the behavior of inventories in the automobile industry it finds that inventory behavior is well explained by the assumption of intertemporal optimization with rational expectations the underlying cost structure appears to have substantial costs of changing production as well as substantial costs of being away from target inventory thelatter being a function of current sales given this cost structure whether inventory behavior is stabilizing or destabilizing depends on the characteristics of the demand process in the automobile industry inventory behavior is destabilizing the variance of production is larger than the variance of sales

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

risk efficiency and the adoption of modern crop varieties evidence from the philippines efficiency among farmers of less developed countries has been the focus of numerous studies since t w schultz hypothesized that farmers in developing agricultures are poor but efficient 1 a growing body of literature supports schultz s argument that farmers in developing agricultures have low incomes not because they use their resources inefficiently but because they lack the technology and resources they need to realize higher productivity and thus higher incomes a high priority in agricultural development assistance since the 1960s has been the generation of technology that would enable farmers to increase their productivity much research has been devoted to the causes of low agricultural productivity and the longer term productivity gains that may be forthcoming from modern technology but less attention has been devoted to the process of technology adoption by low income farmers as noted in the recent survey of adoption of agricultural innovations by g feder r e just and d zilberman there have been efforts to model adoption in the context of risk but there is a dearth of empirical evidence on the ways that farmers respond over time as a new production technology is introduced in a risky environment 2 in this article we address the empirical analysis of technical efficiency as farmers adopt new production technology taking into account production risk and learning we utilize recently developed efficiency criteria applicable when production is risky and implement these criteria using an approximation to a representative farmer s decision model 3 pooled time series and cross sectional data collected by the international rice research institute are used to investigate the

specification and estimation of production risk risk preferences and technical efficiency this article deals with specification and estimation of risk preferences production risk and technical inefficiency it makes contribution in three separate areas of production economics first we model producers attitude toward risk and derive risk preference functions without assuming any parametric form of the utility function and any distribution of the error term representing production risk when risk arises from production uncertainty and technical inefficiency second the standard production risk model is extended to accommodate technical inefficiency and producers attitude toward risk finally the technical efficiency model is generalized to accommodate production risk and producers attitude toward risk copyright 2002 oxford university press

the variability of aggregate demand with s s inventory policies this paper develops a general theory of the aggregate implications of s s inventory policies it is shown that s s policies add to the variability of demand with the variance of orders exceeding the variance of sales overall the s s theory contradicts the widely held notion that retail inventories act as a buffer protecting manufacturers from fluctuating sales in 1951 arrow harris and marschak 3 introduced the s s form of inventory policy the policies are designed for retailers of finished goods who face economies of scale when placing orders with their suppliers to pursue an s s inventory policy the retailer establishes a lower stock point s and an upper stock point s no order is placed until inventories fall to s or below whereupon they are restored to the maximum of s a general proof of the optimality of these s s inventory policies was provided by scarf 13 at the microeconomic level the model has been extensively investigated formulae are available to compute optimal policies e g ehrhardt 6 and these policies are xidely used in industry e g schwartz ed 14 in addition the model has been extended to increasingly complex demand environments e g karlin and fabens 11 in contrast little is known about the macroeconomic implications of s s policies several recent papers have begun to correct this deficiency akerlof has suggested that pursuit of constant threshold money holding policies of the s s variety might be responsible for the observed low short run income elasticity of the demand for money akerlof 1 and akerlof and milbourne 2 in the operations research literature ehrhardt schultz and wagner 7 analyzed the demand environment of a wholesaler supplying several retailers they required that the distinct retailers have independent sales ruling out the analysis of common factors in sales finally simulation results of blinder 4 suggested a role for the s s model in understanding retail sector inventories however the theoretical difficulties with the model remained unresolved blinder commented if firms have a technology that makes the s s rule optimal aggregation across firms is inherently difficult indeed it is precisely this difficulty which has prevented the s s model from being used in empirical work to date blinder 4 p 459 in this paper we present a general theory of the aggregate implications of s s policies our central finding is that s s policies add to the variability of demand with the variance of orders exceeding the variance of sales this result holds even in the presence of common factors in retail sales in addition a close connection

agricultural market access a moving target in the wto negotiations abstract this article analyzes the impact of multilateral market access liberalization of the doha round agricultural negotiations at the center are the effects of variations in the magnitudes of tariff cuts different tariff cutting formulas the tariff capping as well as different numbers and width of tariff bands the simulations are conducted with an extended version of the gtap model and the gtap database 6 0 including bound and applied rates and a module to cut tariffs at the 6 digit tariff line level the results reveal that the heights of the tariff cuts and the kind of tiered formula applied are most important for the outcome of the doha round while the width of tariff bands and the tariff capping only have a moderate influence on the countries trade pattern and welfare in contrast the number of tariff bands is not important for the results

automobiles and the national industrial recovery act evidence on industry complementarities this paper investigates the automobile industry code negotiated in 1933 and modified in 1935 under the national industrial recovery act the amended code contained a provision calling for automobile producers to alter the timing of new model introductions and the annual automobile show as a means of regularizing employment in the industry our analysis of this period provides evidence against the hypothesis that changes in fundamentals led to the dramatic changes in the seasonal pattern of production and sales starting in 1935 instead it appears that the national industrial recovery act succeeded in coordinating activity on an alternative nash equilibrium

econometric estimation of producers risk attitudes general methods are proposed for the identification and econometric estimation of the parameters of the distribution of risk attitudes in a producer population the proposed methods also provide the basis for the development of statistical tests of model specification and of behavioral hypotheses econometric risk attitude estimation is shown to be possible under less restrictive conditions than previously believed a moment based version of the general model is applied to indian data and the econometrically estimated risk attitudes are presented and compared to experimental results for a similar group of producers

assessing farmers risk preferences and their determinants in a marginal upland area of vietnam a comparison of multiple elicitation techniques we examine the consistency of risk preference measures based on eight hypothetical elicitation methods and a lottery game applied to smallholder farmers in a marginal upland environment in vietnam using these measures we identify influencing factors of risk aversion via regression analysis whereby unlike previous studies we include several proxies of social capital such as social networks and norms data were collected from household heads and spouses separately in a random sample of 300 households although correlations between most of the various risk preference measures are all statistically highly significant most are weak on average respondents have a high degree of risk aversion and specific characteristics gender age idiosyncratic shocks education social norms network reliance with extended family and connections to local authorities are significant determinants of risk preferences across most elicitation methods whereas others the household s dependency ratio wealth and covariate shocks are significant in a few methods only the explanatory power of the models is limited indicating that other factors are likely to be of greater importance in determining risk preferences the results can help target safety nets encourage investments and lead to the development of more applicable methods for assessing risk preferences of smallholders in developing countries

the production impact of cash for clunkers implications for stabilization policy during july and august of 2009 americans purchased nearly 700 000 new automobiles or light trucks under the government s cash for clunkers program officially the car allowance rebate system or cars under the terms of the purchase qualified buyers traded in their old vehicles to receive a rebate on the price of a new vehicle the amount of the rebate either 3 500 or 4 500 depended on both the model that was traded in and the model that was acquired the direct cost to taxpayers of subsidizing these purchases was roughly 2 8 billion the program had two primary goals to reduce energy consumption and pollution by inducing consumers to replace their old gas guzzlers with newer fuel efficient models and to serve as a stimulus for the troubled automobile industry and the u s economy as a whole in this article we take a close look at the second objective exploring how the cars program affected sales and more important production in the automobile industry 1 drawing on our findings we then propose an answer to the more difficult question of the program s impact on u s gross domestic product gdp 2 in line with other recent studies our analysis shows that the cars program had only a transitory cumulative effect on sales we estimate an initial impact of about 450 000 additional automobile sales but these were essentially shifted from the periods before and especially after the program we calculate that by january 2010 the cumulative effect of the cars program on auto sales was essentially zero 3 more important for our purposes however is the program s effect on automobile production while most studies of cars have focused on sales we argue that the program s success as a stimulus to the economy hinges on its impact on production production increases are more likely to translate into higher gdp and employment gdp being fundamentally a measure of production sales clearly rose at the outset but given that the industry can simply let inventory stocks absorb the increase in sales higher sales alone do not imply higher gdp or employment 4 overall we find that the program had a very modest and short lived effect on production production was about 200 000 units higher during the program in comparison to the 450 000 increase in sales sales from september 2009 to january 2010 were correspondingly lower than they would have been in the absence of cars which allowed producers to have lower production while still replenishing their inventory stocks thus on a quarterly basis we estimate that the cars program shifted production by around 100 000 units from 2009q4 and 2010q1 to 2009q3 these calculations suggest that the program had a negligible direct effect on gdp shifting less than roughly 2 billion or less than one tenth of 1 of gdp into 2009q3 from the subsequent two quarters this contrasts starkly with a study released by the department of transportation dot in the immediate aftermath of the program which concluded that cars had given a substantial boost to both gdp and employment in the final section of the article we discuss why our conclusions differ from those of the dot study our findings raise broader questions beyond just this particular program about the efficacy of efforts to stimulate short term spending it is clearly a mistake to gauge their impact by just looking at the spending they induce without looking at the supply side it is reasonable to expect that producers will use other margins than production and employment to respond to temporary movements in sales so the only question is quantitative how large is the gap between the sales and production impact we find it to be large in the case of cash for clunkers in what follows we will lay out the economics behind our analysis by examining how rebates and other transitory price changes affect consumer purchases and manufacturers inventory decisions

rational expectations and the smoothing properties of inventories of finished goods abstract this paper formulates and estimates a dynamic rational expectations equilibrium model of inventories of finished goods and employment of labor the view that the primary role of inventories of finished goods is to act as a buffer stock in the face of fluctuating demand is examined both the model and estimation results indicate that this is the case because of differences in the costs involved for firms in changing their inventory stocks and labor force in addition to providing some new evidence on the behavior of inventories of finished goods and employment the paper illustrates a technology for maximum likelihood estimation of structural parameters under the hypothesis of rational expectations

inventories and sticky prices note in a recent contribution to this review alan blinder provides an interesting analysis of the relationship between optimal inventory decisions and the process of price adjustment arguing that inventory permits separation of production and sale decisions and allows the firm greater flexibility in responding to anticipated demand disturbances blinder shows that the responsiveness of relative prices depends critically upon the cost of storage and the temporal structure of the demand shocks few economists would fault the intuitive substance of blinder s basic proposition and the proposition is justified with characteristic precision the analysis however is considerably less general than blinder maintains the formal argument of his paper relies upon a simple model of a monopolist capable of backlogging orders and storing unsold goods as the model is constructed order backlogs assume a role of fundamental importance in any stationary equilibrium this feature of the model vitiates blinder s extension of his result to situations in which order backlogs are prohibited the basic monopoly model developed in sections i and ii of blinder s paper places no restriction upon the sign of inventory negative inventory is interpreted as net unfilled orders while no distinction is drawn between reductions in gross inventory and additions to the order backlog as a result the cost of holding inventory is symmetric around an arbitrary minimum point the only role of inventory is to permit the time paths of production and sales to differ gross inventory allows production to antedate sales while order backlogs generate revenue before production costs are borne under these circumstances if future costs and revenues are discounted it is natural to expect any stationary equilibrium level of net inventory to be negative this can be shown to be true of blinder s model it is useful to distinguish in general between the nonstochastic stationary level of inventory n and the stochastic stationary level n the former is realized when the current expected demand disturbance eo is zero and production equals sales the latter which differs from customary usage represents the level of inventory expected to prevail when adjustment to the current nonzero expected demand disturbance is complete if the demand disturbance is not a random walk so that p 1 in blinder s 5 the two equilibria coincide relatively little attention is devoted to either stationary solution because blinder s main interest is in the optimal current solution level n1 the stochastic stationary level is crucially important however since it represents the goal toward which the current choice must provide an optimal first step to verify that both nand n are negative whenever production is strictly positive note that blinder s necessary condition 7 with the coefficient cl set equal to zero together with the definition of xa as the deviation of the shadow value of inventory q from its nonstochastic stationary value q implies

inventories inflation dynamics and the new keynesian phillips curve abstract we introduce inventories into an otherwise standard new keynesian model and study the implications for inflation dynamics inventory holdings are motivated as a means to generate sales for demand constrained firms we derive various representations of the new keynesian phillips curve with inventories and show that one of these specifications is observationally equivalent to the standard model with respect to the behavior of inflation when the model s cross equation restrictions are imposed however the driving variable in the new keynesian phillips curve real marginal cost is unobservable and has to be proxied by for instance real unit labor cost an alternative approach is to impute marginal cost by using the model s optimality conditions we show that the stock sales ratio is linked to marginal cost we also estimate these various specifications of the new keynesian phillips curve using gmm we find that the predictive power of the inventory specification at best approaches that of the standard model but does not improve upon it

production risk and optimal fertilizer rates a random coefficient model risk as an impediment to progress is a recurrent theme among development practitioners wharton galbraith lipton in the context of the new rice technology it has been argued that the full potential of modern varieties mvs has not been realized because year toyear variability in crop response has caused farmers to use less than the economically optimal level of inputs barker et al over the years a growing body of literature has emerged quantifying the effect of risk aversion on input use particularly fertilizer the evidence is conflicting and the controversy continues while moscardi and de janvry and ryan and perrin conclude that risk aversion substantially lowers input levels roumasset and rosegrant and herdt show that the low observed levels of input use cannot be attributed to risk

production risk and optimal input decisions the paper examines the impact of production risk on a producer s optimal input decisions whether producers use more or fewer inputs in a yield risky environment depends on the sign of the marginal risk premium which is determined by risk preferences and technology i present the weakest condition on technology that is sufficient to sign the marginal risk premium for all risk averse preferences if this condition fails to hold the marginal risk premium is not of the same sign for all risk averters results are used to explore the properties of an estimated technology

production risk risk aversion and the determination of risk attitudes among spanish rice producers agricultural production is subject to risk and the attitudes of producers toward risk will influence input choices insofar as these affect production risk risk attitudes in turn may be affected by certain socioeconomic characteristics of producers using 2004 survey data from a cross section of 130 spanish rice farms we estimate risk aversion coefficients of farmers and investigate the influence of a series of socioeconomic variables on their risk attitudes our results show that farmers exhibit risk averse behavior and that risk attitudes are related to a series of socioeconomic characteristics in particular the belief that the farm will continue after the producer retires is found to increase the degree of risk aversion while age is found to have nonlinear effects on risk aversion off farm income especially from nonagricultural activities is found to reduce risk aversion neither the educational level of the producer nor the presence of dependents on the household is found to have an effect on risk preferences regarding the production technology we find that land labor and fitosanitary products are risk reducing inputs whereas capital seeds and fertilizer all increase risk

joint risk preference technology estimation with a primal system applied studies of the firm in a risky environment have concentrated either on the firm s technology or on its risk preferences these models result in generally inconsistent and inefficient parameter estimates a primal model is proposed which allows a firm s preferences and technology to be estimated jointly in the presence of risk the model is applied to iowa corn production and estimated technology parameters are compared with those from other approaches modest risk aversion leads to inelastic even backbending per acre supplies and input demands yield heteroskedasticity in inputs leads to supply heteroskedasticity in prices especially for risk neutral firms

inventories and the volatility of production a stylized fact associated with inventory behavior is that the variance of production exceeds the variance of sales this paper presents a model of production decisions with demand uncertainty that incorporates no nnegativity constraints on inventories even with no productivity shocks optimal behavior by the firm is consistent with this stylized fact either if demand exhibits positive serial correlation or if the firm can backlog excess demand the reason is that a demand shock affects both the actual inventory level given unchanged production and the desired level production must replenish the stock and adjust to the new desired level copyright 1987 by american economic association

doha merchandise trade reform what is at stake for developing countries this paper provides new estimates of the global gains from multilateral trade reform and their distribution among developing countries in the presence of trade preferences particular attention is given to agriculture as farmers constitute the poorest households in developing countries but are the most assisted in rich countries the latest gtap database version 6 05 and the linkage model of the global economy are used to examine the impact first of current merchandise trade barriers and agricultural subsidies and then of possible reform outcomes from the wto s doha development agenda the results suggest moving to free global merchandise trade would boost real incomes in sub saharan africa proportionately more than in other developing countries or high income countries despite a terms of trade loss in parts of that region net farm incomes would rise substantially in that and other developing country regions thereby alleviating rural poverty a doha partial liberalization could move the world some way toward those desirable outcomes but more so the more developing countries themselves cut applied tariffs particularly on agricultural imports

asynchronized multiperiod commitments and cycles abstract we consider a game where agents can synchronize or stagger their decisions we compare the outcomes of both timing patterns and show that spillovers and strategic interactions are crucial for such a comparison a typology used in industrial organization distinguishing four cases fat cat top dog lean and hungry puppy dog allows us to compare the actions taken in the staggered variant and in the synchronized one the staggered variant exhibits cycles and players are both better off when there are strategic complementarities between them a timing game is then set up so as to endogenize the choice between the two variants we study two examples are developed i bertrand competition and ii a wage setting game when there are two monopoly unions in two interrelated firms we show that the staggering of price decisions generates counter cyclical mark ups in the first example and the staggering of wage decisions generates cycling output in the industry in the second example

the seasonal cycle and the business cycle almost all recent research on macroeconomic fluctuations has worked with seasonally adjusted or annual data this paper takes a different approach by treating seasonal fluctuations as worthy of study in their own right our results show that seasonal fluctuations are an important source of variation in all macroeconomic quantity variables but are small or entirely absent in both real and nominal price variables the timing of the seasonal fluctuations consists of increases in the second and fourth quarters a large decrease in the first quarter and a mild decrease in the third quarter the paper demonstrates that with respect to each of several major stylized facts about business cycles the seasonal cycle displays the same characteristics as the business cycle in some cases even more dramatically than the business cycle that is we find that at seasonal frequencies as well as at business cycle frequencies output movements across broadly defined sectors move together the timing of production and the

a meta analysis of general and partial equilibrium simulations of trade liberalisation under the doha development agenda model based simulation of welfare effects is commonly used to make a case for trade liberalisation and to inform participants a nd stakeholders in trade negotiations however the simulated welfare effects of trade liberalisation vary greatly even across studies that model similar liberalisation scenarios this

coordinating lead times and safety stocks under autocorrelated demand we consider a supply chain in which orders and lead times are linked endogenously as opposed to assuming lead times are exogenous this assumption is relevant when a retailer s orders are produced by a supplier with finite capacity and replenished when the order is completed the retailer faces demands that are correlated over time either positively or negatively which may for example be induced by a pricing or promotion policy the auto correlation in demand affects the order stream placed by the retailer onto the supplier and this in turn influences the resulting lead times seen by the retailer since these lead times also determine the retailer s orders and its safety stocks which the retailer must set to cover lead time demand there is a mutual dependency between orders and lead times the inclusion of endogenous lead times and autocorrelated demand represents a better fit with real life situations however it poses some additional methodological issues compared to assuming exogenous lead times or stationary demand processes that are independent over time by means of a markov chain analysis and matrix analytic methods we develop a procedure to determine the distribution of lead times and inventories that takes into account the correlation between orders and lead times our analysis shows that negative autocorrelation in demand although more erratic improves both lead time and inventory performance relative to iid demand positive correlation makes matters worse than iid demand due to the endogeneity of lead times these effects are much more pronounced and substantial error may be incurred if this endogeneity is ignored

machine replacement and the business cycle lumps and bumps this paper explores investment fluctuations due to discrete changes in a plant s capital stock the resulting aggregate investment dynamics are surprisingly rich reflecting the interaction between a replacement cycle the cross sectional distribution of the age of the capital stock and an aggregate shock using plant level data lumpy investment is procyclical and more likely for older capital further the predicted path of aggregate investment that neglects vintage effects tracks actual aggregate investment reasonably well however ignoring fluctuations in the cross sectional distribution of investment vintages can yield predictable nontrivial errors in forecasting changes in aggregate investment

formula approaches for market access negotiations textabstractmost of the large tariff reductions achieved in multilateral trade negotiations have involved tariff cutting formulas such as the swiss formula however wide variations in initial tariff rates between active participants call for new approaches under the doha development agenda this paper surveys a range of formula options and examines both targeted and flexible applications of the swiss formula that target tariff escalation and peaks and would allow policy makers to directly target how far they will move towards free trade while providing some flexibility for trading off reductions in peak tariffs against reductions in lower tariff sectors

on the periodic structure of the business cycle this article tests whether an economic recovery is equally likely to occur in any month of the year i test this hypothesis with a homogeneous markov switching regime model and use the turning point dates for business cycles marked by the national bureau of economic research and romer i tend to find unequal probabilities to switch from recession to expansions in particular the spring and the month of december appear to have higher incidence of economic recovery my results also imply that recessions and expansions are on average longer or shorter depending on what time of the year they start this suggests the presence of a seasonal pattern in business cycle durations though such a notion of seasonality is quite different from the common one based on unobserved component linear time series models i investigate issues that go beyond linear dependence between seasonality and business cycles

intermediate inputs and sectoral comovement in the business cycle abstract the post war us business cycle is characterized by positive comovement of employment and output across sectors it has been argued that multi sector growth models are inconsistent with this observation when changes in relative productivities are the main source of fluctuations we suggest that the input output structure of an economy in particular the pervasive use of intermediate inputs can induce positive comovement in sectoral employment and output following changes in relative productivities we calibrate a model of the us economy for the durable and nondurable goods producing sectors and show that sectoral employment and output move together if intermediate inputs are used in production the model is also consistent with the observation that the relative price of nondurable goods is procyclical

a model of imperfect competition with keynesian features the recent literature on the reappraisal of keynes has viewed keynesian equilibria as arising when prices are fixed and effective demands and supplies are equilibrated through the adjustment of quantities one problem with this approach is that it lacks a theory of price determination in particular of why prices are fixed in the present paper we show that a number of keynesian features arise in a model in which prices are fully flexible but where agents have some monopoly power one advantage of this approach is that it provides a theory of the determination of both prices and quantities

multiple expectational equilibria under monopolistic competition this paper shows that a monopolistically competitive economy with real investment can have multiple rational expectations equilibria one is associated with entrepreneurs optimistic expectations about future demand another with entrepreneurs pessimism it also shows that an optimistic expectational equilibrium pareto dominates a pessimistic equilibrium an investment subsidy can be beneficial both by reducing the original underinvestment distortion and by changing firms expectations from pessimistic to optimistic the most important assumption is increasing returns to scale and monopolistic competition makes increasing returns consistent with each producer s optimization

differential uncertainties and risk attitudes between conventional and organic producers the case of spanish arable crop farmers the growing importance of economic factors in farmers decision to go organic has raised interest in characterizing the economic behavior of organic versus conventional farms published analyses so far have not considered differential uncertainties and farmers risk preferences between conventional and organic practices when comparing these techniques our article attempts to assess this issue we use a model of farmer decision under risk to analyze the differential values between spanish cop organic and conventional farms and to assess the incentives for adoption of organic practices results show that organic and conventional farms do have different abilities to control production risk as well as different risk preferences organic price premiums and subsidies are found to be powerful instruments to motivate adoption of organic techniques

alternative time patterns of decisions and dynamic strategic interactions this paper offers a simple approach to study steady state markov perfect equilibria arising in dynamic games when players are obliged to commit their actions for several periods it highlights the importance of spillovers and dynamic strategic interactions when assessing the various time patterns conceivable in such games the obtained results are then applied to various either micro or macroeconomic issues where time patterns of decisions matter

stochastic technology risk preferences and adoption of site specific technologies a model of farmer decision making is developed to determine the extent to which uncertainties about soil fertility and weather affect the value of site specific technologies ssts using jointly estimated risk and technology parameters uncertainty can lead risk averse farmers to apply more fertilizers and generate more pollution than in the certainty case ignoring uncertainty and risk aversion would overestimate the economic and environmental benefits of ssts and underestimate the subsidy required to induce adoption accounting for uncertainties and risk preferences might explain the low observed adoption rates of ssts improving the accuracy of ssts would increase the incentives for adoption

inventories and the propagation of sectoral shocks this paper contrasts the dynamic properties of an imperfectly competitive economy with a representative agent real business cycle model for both economies inventories are the important dynamic linkage the predictions of these models with regards to the comovement of employment across sectors may differ empirical evidence on the comovement of employment over the business cycle is consistent with the model of imperfect competition with inventory holdings copyright 1990 by american economic association

household s risk attitudes in indonesian villages this paper estimates attitudes towards risk using data obtained through interviews of 400 households in villages in indonesia participants were invited to play investment games in order to identify household risk attitudes the game result supports the hypothesis of non decreasing partial relative risk aversion using an ordered probit model the determinants of risk attitude were investigated the results show that the variable of co residence is important an individual living with his or her parents is less risk averse than an individual in a nuclear household co residence can be viewed as a type of security blanket partial relative risk aversion decreases with the level of education and wealth

coordination failures in immigration policy abstract we propose a theoretical framework for analyzing the problems associated to unilateral immigration policy in receiving countries and for evaluating the grounds for reform of international institutions governing immigration we build a model with multiple destination countries and show that immigration policy in one country is influenced by measures adopted abroad as migrants choose where to locate in part in response to differences in immigration policy this interdependence gives rise to a leakage effect of immigration policy an international externality well documented in the empirical literature in this environment immigration policy becomes strategic and unilateral behavior may lead to coordination failures where receiving countries are stuck in welfare inferior equilibria we then use an equilibrium refinement to show that the selected equilibrium differs from the pareto dominant one and argue that multilateral institutions that help receiving countries make immigration policy commitments would address this inefficiency

can the production smoothing model of inventory behavior be saved the production smoothing model of inventory behavior has a long and venerable history and theoretical foundations that seem very strong yet certain overwhelming facts seem not only to defy explanation within the production smoothing framework but actually to argue that the basic idea of production smoothing is all wrong most prominent among these is the fact that the variance of detrended production exceeds the variance of detrended sales this paper first documents the stylized facts then it derives the production smoothing model rigorously and explains how the model can be amended to make it consistent with the facts finally it reviews the theoretical and empirical evidence and tries to draw some tentative conclusions

non convex costs and capital utilization a study of production scheduling at automobile assembly plants i study detailed data from eleven automobile assembly plants these data display considerable cross plant heterogeneity in production scheduling to explain the observed heterogeneity i solve a dynamic programming model when desired production is below the plant s minimum e cient scale non convexities induce production bunching the plant uses less than full capital utilization on average and production is more volatile than sales when desired production is above the plant s minimum e cient scale the plant operates in a convex region of the cost curve in this case it uses high levels of capital utilization and production is less volatile than sales 2000 elsevier science b v all rights reserved jel classixcation e23 d21 l23

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances