option bounds with finite revision opportunities this article generalizes the single period linear programming bounds on option prices by allowing for a finite number of revision opportunities it is shown that in an incomplete market the bounds on option prices can be derived using a modified binomial option pricing model tighter bounds are developed under more restrictive assumptions on probabilities and risk aversion for this case the upper bounds are shown to coincide with the upper bounds derived by perrakis while the lower bounds are shown to be tighter in 1984 perrakis and ryan 6 derived upper and lower bounds on european option prices in discrete time and under modest assumptions on preferences and

strategic behavior in contests comment almost by definition contests involve strategy this is especially true in contests between unevenly matched contenders in a recent article avinash dixit 1987 explored strategic commitment in contests between a favorite and an underdog the favorite is defined as the player whose chance of victory exceeds one half at the nash equilibrium an underdog s chance is less than one half dixit concludes that if the favorite has the opportunity to move first then he will overcommit effort compared with the nash equilibrium an important implication of the favorite overcommitting effort is that strategic behavior leads to greater social costs see gordon tullock 1980 the opposite holds if the underdog has the opportunity to move first this paper demonstrates that the favorite will never overcommit effort given endogenous order of moves the favorite finds it advantageous to wait until the underdog moves surprisingly the underdog s best strategy is not to wait but to make the first move throwing the first punch the equilibrium order of play is for the underdog to move before the favorite in this equilibrium one never observes overcommitment of effort consequently extending dixit s model to allow for endogenous order of moves suggests that strategic behavior in contests will lead to undercommitment compared with nash behavior

dualism and reform in china according to the dual economy tradition of economic development models less developed economies at an early stage of development are marked by a dichotomy between a modern sector in which workers are hired at an institutional wage in numbers that rise with the growth of the industrial capital stock and a traditional sector in which workers subsist at an income level that is somewhat below the indus

valuing catastrophe derivatives under limited diversification a stochastic dominance approach abstract we present a new approach to the pricing of catastrophe event cat derivatives that does not assume a fully diversifiable event risk instead we assume that the event occurrence and intensity affect the return of the market portfolio of an agent that trades in the event derivatives based on this approach we derive values for a cat option and a reinsurance contract on an insurer s assets using recent results from the option pricing literature we show that the assumption of unsystematic event risk seriously underprices the cat option last we present numerical results for our derivatives using real data from hurricane landings in florida

tenure land rights and farmer investment incentives in china the goal of this paper is to understand the nature of the property rights associated with china s land tenure systems and to study the impact of these property rights on agricultural production efficiency the results show that land tenure and associated property rights in rural china affect the production behavior of farmers the most robust finding is that the right to use land for long periods of time encourages the use of land saving investments while the results show that land tenure affects agricultural production decisions the difference between collective and private plots however is small compared to the private plotcommunal productivity gap that existed in the pre reform period 1998 elsevier science b v all rights reserved

upper and lower bounds of put and call option value stochastic dominance approach applying stochastic dominance rules with borrowing and lending at the risk free interest rate we derive upper and lower values for an option price for all unconstrained utility functions and alternatively for concave utility functions the derivation of these bounds is quite general and fits any kind of stock price distribution as long as it is characterized by a nonnegative beta transaction costs and taxes can be easily incorporated in the model presented here since investors are not required to revise their portfolios continuously the price that is paid for this generalization is that a range of values rather than a unique value is obtained in the last decade there has been an increasing interest in the options market by both academicians and practitioners the most well known valuation models are the black scholes 4 model the jump stochastic process model see cox and ross 6 the binomial model see cox ross and rubinstein 7 rendleman and bartler 19 and sharpe 22 and rubinstein s discrete model 21 recently perrakis and ryan 18 using rubinstein s approach have derived upper and lower bounds for option prices the relative pricing theory of contingent claims differs in the continuous time and discrete time models in a continuous time framework the instantaneous expected rate of return of the option and that of the underlying stock must follow a certain market equilibrium condition in this case the equilibrium condition is easily determined by a continuous hedging strategy in the discrete time case there is no hedging strategy to provide a simple relationship between the option and the stock price however for a given value distribution of the stock the value distribution of the option is uniquely determined by the option exercise price and this suggests some possible relationships between the stock and option values

effort levels in contests with two asymmetric players a contest is a situation in which players compete with one another by expending effort to win a prize examples abound firms compete by spending rd 26 krueger 14 posner 20 rogerson 23 appelbaum and katz 1 hillman and riley 12 hirshleifer 13 ellingsen 8 nitzan 18 and baik 2 3 have studied rent seeking contests lazear and rosen 15 o keeffe viscusi and zeckhauser 19 and rosen 24 have examined performance incentives associated with reward schemes riley 22 has analyzed the war of attrition and auctions dixit 7 has considered strategic commitments in contests with different applications these are only a part of the literature on the theory of contests despite the vast literature however the effects of asymmetries between players have not been clarified except by harris and vickers 11 who analyze in a patent race model the strategic consequences of asymmetries the purpose of this paper is to examine the effects of asymmetries between two players on individual and total effort levels in a model with a logit form probability of winning function effort levels expended by the players deserve attention effort in a rent seeking contest is interpreted as social costs and thus total effort level is a measure of economic efficiency effort in an r d contest is interpreted as r d expenditures and thus effort levels determine the expected date of invention we focus on asymmetries between the players resulting from their different valuations of the prize their different abilities to convert effort into probability of winning or both such asymmetries are common in contests for example people in different locations may receive different

on option pricing bounds the purpose of this article is to compare the perrakis and ryan bounds of option prices in a single period model with option bounds derived using linear programming it is shown that the upper bounds are identical but that the lower bounds are different a comparison of these bounds together with merton s bounds and the black scholes prices in a lognormal securities market is presented the black scholes 1 option pricing model is preference free its simplicity derives from the continuous trading assumption which enables a portfolio of stock and bonds to be constructed so as to replicate the payouts of the option in an incomplete market with only finite opportunities to revise portfolios no preference free option price can be constructed 3 6 for this case preferencedependent prices can be established rather than place restrictive assumptions on preferences perrakis and ryan pr 5 have recently derived upper and lower bounds for a single and multiple period call option price the development of these bounds is based on the single price law and arbitrage arguments and requires modest assumptions on preferences the bounds exist as equilibrium values given a consensus on stock price distributions in this article we shall develop bounds for option prices based on primitive prices in incomplete markets and compare these bounds to the single period bounds derived by perrakis and ryan towards this goal we first review the pricing approach for primitive securities and proceed to re express the pr bounds as derived from their arbitrage portfolios then using linear programming bounds on option prices are derived linear programming approaches for obtaining relationships among option prices have been investigated garman 2 for example established an algebra for evaluating hedge portfolios using this algebra a one period linear program can be established that provides a way to search for arbitrage opportunities over an infinite number of portfolio strategies one of the features of the algebra is that only one linear program need be solved to determine if riskless arbitrage strategies can be established by investigating the dual of the linear program garman obtained necessary and sufficient conditions for rational option pricing in a one period setting these bounds were shown to be consistent with the bounds determined by merton 4 unlike garman s approach the linear programming approach presented here places constraints on time preferences risk aversion and state probabilities under specific sets of assumptions linear programs are formulated where the objective function to be optimized is the call price minimization and maximi

post reform forestland markets in china land markets developed rapidly in china after agricultural land tenure reforms but not after forest reforms we surveyed farmers in three provinces to examine the post reform forestland markets and options to strengthen them using household choice experiments we estimate land market demand and supply under alternative contractual arrangements our findings are consistent with the currently thin markets but also suggest that alternative institutional and contractual conditions could support broader participation in land markets strengthening property rights on forestland emerges as an especially effective possible policy instrument we illustrate its predicted effects on equilibrium rental rates and market participation

option valuation with systematic stochastic volatility we use an extension of the equilibrium framework of rubinstein 1976 and brennan 1979 to derive an option valuation formula when the stock return volatility is both stochastic and systematic our formula incorporates a stochastic volatility process as well as a stochastic interest rate process in the valuation of options if the mean volatility and covariance processes for the stock return and the consumption growth are predictable our option valuation formula can be written in preference free form further many popular option valuation formulae in the literature can be written as special cases of our general formula in this paper we investigate the valuation of individual stock options when the volatility of the underlying stock return is stochastic and has a systematic component which is related to the stochastic volatility of the consumption growth or the market return such an investigation is timely and of significant interest because there is now a considerable amount of evidence that the volatility of stock prices is not only stochastic but that it is also highly correlated with the volatility of the market as a whole for example see black 1975 conrad kaul and gultekin 1991 jarrow and rosenfeld 1984 jorion 1988 and ng engle and rothschild 1992 furthermore empirical work by black and scholes 1972 gultekin rogalski and tinic 1982 and whaley 1982 has shown that the empirical biases inherent in the black scholes option prices are different for options on high and low risk stocks because low risk stocks are mainly large firm stocks with stochastic return volatilities that are highly correlated with the return volatility of the market and high risk stocks are mainly small firm stocks with a lessimportant systematic volatility component incorporating systematic volatility effects in option valuation models has the potential to reduce the empirical biases exhibited by prices computed from the black scholes formula we use equilibrium arguments that extend the consumption based representative agent framework of rubinstein 1976 brennan 1979 and stapleton and subrahmanyam 1984 to allow individual asset returns and the consumption growth to exhibit stochastic volatility in particular we permit the volatility of individual asset returns to consist of a systematic component that is related to the consumption or market volatility in addi

caps on political lobbying the cost of political campaigns in the u s has risen substantially in recent years for example real spending on congressional election campaigns doubled between 1976 and 1992 steven d levitt 1995 there are many reasons why increased campaign spending might be socially harmful first increased spending means increased fund raising which may keep politicians from their legislative duties 1 second a lobbyist who makes a large campaign contribution may have undue influence on electoral outcomes on the shaping of legislation or on the outcome of regulatory proceedings 2 that is the socially preferred candidate or legislation may not prevail likewise a lobbyist involved in a regulatory matter or a competition for a government contract may benefit unduly from a legislator s intervention 3 third a perception that campaign contributions purchase influence may lead to increased tolerance of corruption in the private sector a desire to control campaign spending has spawned many initiatives to limit both campaign contributions and spending beginning with the passage of the federal election campaign act feca political action committees pacs can contribute at most 5 000 per election to a candidate while individuals can contribute at most 1 000 restrictions have also been put on in kind contributions making it more difficult to circumvent these limits 4 while direct restrictions on campaign spending have proven difficult to implement recent initiatives aim to impose voluntary spending limits and stricter limits on contributions 5 despite the existing legislation and the proposals to limit contributions little is known about the impact of contribution limits on aggregate expenditures while it is intuitively appealing that aggregate expenditures would drop we challenge that intuition here we study a lobbying game and show that a cap on individual lobbyists expenditures may have the perverse effect of increasing aggregate expenditures and loweri this abstract was borrowed from another version of this item

insider privatization with a tail the screening contract and performance of privatized firms in rural china abstract this paper studies insider privatization in rural china and provides an explanation of why some firms have performed well after privatization but others have not we show theoretically that the underperformance of insider privatized firms could be due to the manager cum owner s lack of incentives after privatization a screening theory predicts that the buyout price is correlated with the postprivatization incentives and a firm s postprivatization performance increases with both the buyout price and postprivatization incentives drawing on data we collected in china we find evidence supporting the theory we also find that the buyout price decreases with the degree of information asymmetry

land rental development via institutional innovation in rural jiangsu china previous studies have demonstrated that there are two important preconditions for encouraging land rental in agriculture out migration and the enhancement of security and transferability of land rights focusing on the latter we scrutinize the impacts of institutions aimed at facilitating land use dynamism particularly the rural shareholding cooperatives rscs which have been established recently at the local level in rural china in general we find that rscs can pave the way for the extension of property rights to farmland and promote more efficient land use patterns using survey data collected from 300 village committees in rural jiangsu province we estimate the effectiveness of rscs in encouraging land rental our analysis reveals that rscs can serve as intermediate agents for reducing transaction costs associated with exchange of land use rights and thereby not only encourage land rental consolidation activities but also enable the entry of non farm household entities into the farm business

local elites and popular support for economic reform in china and india this article analyzes why it is that china an authoritarian political system has managed to generate more popular support for the reform process than india a democracy the authors argue that when local politicians and bureaucrats are more supportive of the reform process there is likely to be greater popular support for economic reform local political elite may be more supportive of reform in an authoritarian than in a democratic system because the level of local elite support for the reform process is influenced by the incentives faced by local elite in china institutional reform changed the incentives faced by local elite whereas in india reforms have not been accompanied by institutional changes that would encourage local elite to support reform to the same extent as in china the argument is based on local elite and mass surveys conducted in china and india in 1990 and 1996 respectively a logit model controlling for a variety of alternative explanations provides evidence that local elite

endogenous timing in contests with delegation i introduction contests with delegation where each player hires a delegate to expend effort or resources on the player s behalf to win a prize are common 1 an example is litigation between a plaintiff and a defendant in which each litigant hires an attorney who expends his effort to win the lawsuit on behalf of his client another example is a rent seeking contest in which each firm hires a lobbyist who expends his effort to acquire a monopoly or a procurement contract from the government on behalf of his client yet another example is a patent contest in which each firm hires a group of independent researchers or university professors who conduct research to obtain a patent on behalf of their employer delegation is attractive to players because they each can use superior ability by hiring a delegate with more ability than herself and achieve strategic commitments through delegation in such contests with delegation we believe delegates decide endogenously when to expend their effort after signing delegation contracts indeed pursuing their self interest the delegates may well endogenize the order of their moves and communicate it with each other before they expend their effort we believe also that players take it into account when designing their contracts for the delegates that the delegates will endogenize the order of their moves it is these ideas that motivate this paper accordingly the purpose of this paper is to systematically study contests with delegation in which delegates decide endogenously when to expend their effort after signing delegation contracts and before they expend their effort we study two player contests with delegation focusing on not only the equilibrium delegation contracts between players and their delegates but also the equilibrium orders of the delegates moves specifically we set up and analyze the following three stage game in the first stage two players each hire a delegate and they simultaneously announce their contracts written with their delegates each player s contract specifies how much her delegate will be paid if he wins the contest and how much if he loses it in the second stage each delegate decides when to expend his effort and the delegates announce their decisions simultaneously in the third stage the delegates expend their effort according to their decisions in the second stage to win the prize on behalf of their employers we show that in equilibrium the delegate hired by the higher valuation player chooses his effort level after observing his counterpart s and his expected payoff is greater than that of his counterpart this advantage of the delegate of the higher valuation player can be explained by the fact that his employer the higher valuation player offers better contingent compensation as it will be defined in section ii to him than the lower valuation player does to her delegate we compare the outcomes of the endogenous timing framework the three stage game presented above with those of the simultaneous move framework the game which is the same as the three stage game with the exception that the delegates choose their effort levels simultaneously and this order of their moves is given exogenously an interesting result is that each player offers her delegate a better contract in the endogenous timing framework than in the simultaneous move framework another interesting result is that unless the valuation for the prize of the higher valuation player is significantly greater than that of the lower valuation player then each delegate s expected payoff is greater in the endogenous timing framework than in the simultaneous move framework whereas each player s expected payoff is less in the endogenous timing framework than in the simultaneous move framework in summary pursuing their self interest the delegates decide endogenously when to expend their effort given contracts between the players and the delegates

two player asymmetric contests with ratio form contest success functions i examine players equilibrium effort levels in two player asymmetric contests with ratio form contest success functions i first characterize the nash equilibrium of the simultaneous move game i show that the equilibrium effort ratio is equal to the valuation ratio and that the prize dissipation ratios for the players are the same i also show that the prize dissipation ratio for each player is less than or equal to the minimum of the players probabilities of winning at the nash equilibrium and thus never exceeds a half then i examine how the equilibrium effort ratio the prize dissipation ratios and the players equilibrium effort levels respond when the players valuations for the prize or their abilities change jel d72 c72 i introduction a contest is a situation in which players compete with one another by expending irreversible effort to win a prize typical examples are various types of rent seeking contests competition among firms to win a monopoly rent secured under government protection or by a government procurement contract competition between domestic and foreign firms to obtain governmental trade policies favorable to them competition among firms to acquire a rent generated by rights of ownership to an import quota and competition among firms to capture rents created by governmental decisions to establish tariffs or other trade barriers other examples of contests include auctions patent races research and development r d competition among firms litigation competition for jobs among job candidates competition among candidates to win promotion to higher ranks election campaigns between political candidates and competition between local governments to invite business firms government institutions or government owned corporations into their districts naturally due to their prevalence and importance in economies such contests have been studied by many economists loury 1979 lee and wilde 1980 tullock 1980 rogerson 1982 rosen 1986 appelbaum and katz 1987 dixit 1987 hillman and riley 1989 hirshleifer 1989 ellingsen 1991 nitzan 1991 1994 krishna and morgan 1997 che and gale 1998 hurley and shogren 1998 and konrad 2000 to name a few in this vast literature on the theory of contests one of the main issues is how much effort do the players exert in pursuit of the prize indeed it is of great interest because the players effort levels determine the profitability of the players engaging in the contest and in some cases they are revenues collected by the contest organizer or bribes given to government officials furthermore they account for other important outcomes of the contest for example in a rent seeking contest efforts expended by the players are viewed as social costs due to rent seeking activities so that total effort level is a measure of economic efficiency in an r d contest effort levels expended by the players these are r d expenditures of the firms determine the expected date of invention this article also addresses the issue how much effort do the players exert in pursuit of the prize but it differs from previous research by dealing with contests with ratio form contest success functions 1 specifically the novelty of this article is to consider two player asymmetric contests in which each player s probability of winning is a function of the ratio of the two players effort levels two player contests with ratio form contest success functions or two player contests that can be best modeled with ratio form contest success functions are easily observed in the real world examples include various types of two player rent seeking contests litigation between a plaintiff and a defendant election campaigns between two parties or candidates and r d competition between two firms consider for example a rent seeking contest in which two firms potential monopolists compete with each other to win a government monopoly franchise contract

dimensions and diversity of property rights in rural china dilemmas on the road to further reform abstract this paper contributes to the debate over land tenure in rural china by conceptualizing and measuring multiple dimensions of property rights in a way that elucidates the competing interests that are affected by the property rights regime utilizing a unique village level data set this paper argues that the regional and temporal variation in rural property rights signals a pattern in which decentralized institutional innovation occurs in response to the competing interests of the national state of local authorities and of present and possible future individual land users unlike the earlier debate concerning the household responsibility system the current property rights dilemma is intrinsically more complex because the potential conflicts of interest between individuals local collectives and the state are greater resolution of that debate will ultimately require careful exploration of the reality and substance of the tradeoffs and competing interests that make further reform of rural property rights so difficult

jump diffusion option valuation in discrete time we develop a simple discrete time model to value options when the underlying process follows a jump diffusion process multivariate jumps are superimposed on the binomial model of cox ross and rubinstein 1979 to obtain a model with a limiting jump diffusion process this model incorporates the early exercise feature of american options as well as arbitrary jump distributions it yields an efficient computational procedure that can be implemented in practice as an application of the model we illustrate some characteristics of the early exercise boundary of american options with certain types of jump distributions jump diffusion processes are popular in option valuation models these processes were incorporated by merton 1976 into the theory of option valuation and constitute an important alternative to the lognormal diffusion process assumed in the black and scholes 1973 model in this paper we develop a tractable discrete time model for valuing options with these processes many authors have suggested that incorporating jumps in option valuation models may explain some of the large empirical biases exhibited by the black scholes model 1 however in many cases closed form solutions for valuing options are not available for example this is true when there is a positive probability of early exercise when the jump distribution is neither lognormal nor discrete or when the option is based on the term structure of interest rates see ahn and thompson 1988 and jarrow and madan 1991 in these important cases the model developed in this paper can be used to value options another aim of this paper is to provide a model which relies on only simple mathematics to price options with jump diffusion processes it is hoped that the key economic relationships underlying jump diffusion models are transparent in this model we provide enough details to make the procedure readily accessible

on the past and future of china s township and village owned enterprises abstract this paper proposes an explanation of the historical success of industrial enterprises owned by township and village governments in china i argue that conditions peculiar to china s prereform economy fostered the growth of a skilled workforce and high savings created unusual market niches and encouraged entrepreneurial undertakings by local political elites especially in areas adjacent to certain cities i then discuss the allocative and technical efficiency of local public enterprises in china from a theoretical standpoint and review some relevant econometric findings finally i consider proposals for reform of town and village enterprise tve ownership and discuss the possible advantages of cooperative forms

endowments technology and factor markets a natural experiment of induced institutional innovation from china s rural reform the induced institutional innovation hypothesis postulates that new institutions are innovated to exploit profitable opportunities arising from institutional disequilibrium the removal of legal restrictions on factor market exchanges after recent reforms in china resulted in institutional disequilibrium this paper utilizes data from a household survey in china to explore i the relationship between the emergence of land labor and rental markets in a region and the distribution of factor endowments across rural households in that region and ii the impact of hybrid rice on the emergence of factor markets in that region the results are consistent with the induced institutional innovation hypothesis

how much expropriation hazard is too much the effect of land reallocation on organic fertilizer usage in rural china in china land is reallocated on either a full scale or a partial basis by employing a unique farm survey that deliberately draws a distinction between full scale and partial land reallocations and by decomposing their respective expropriation risk effects we find that the significantly negative effect of expropriation risk on organic fertilizer usage is driven solely by full scale reallocation consistent with this finding a reduction in the predicted expropriation hazard rate by half leads to a sizable increase of 491 in organic fertilizer usage in villages with a history of full scale reallocation and has an estimated productivity effect of 19 1

the diversity of land markets and regulations in europe and some of its causes abstractthe creation of optimal land institutions attracted renewed attention in the 1990s because of its central role in the transition process in former communist countries in the former soviet union and eastern europe and more recently because of large scale land investments in developing countries this article documents the existence of large variations in land institutions markets and regulation using current and historical data from western and eastern europe it then offers explanations for these differences and draws implications for the role and optimality of land institutions in development with special reference to the current debate on large scale land acquisitions

productivity consequences of alternative land division methods in china s decollectivization an econometric analysis abstract in this paper we examine the productivity effect of the manner of distributing collective land to households under the chinese economic reforms of the 1980s during that period land was distributed by a formula putting weight on both household size and household labor force and land and labor markets were absent or underdeveloped in most regions a simple model of household decision making is developed for this case and a basic result is that agricultural output is concave in the proportion of land distributed according to workforce as opposed to household size this hypothesis is tested on data for 61 production teams of a township formerly commune in hebei province under a quadratic specification grain output displays the expected concave relationship with the land distribution parameter our results provide some evidence of congruence between equality in the distribution of resources and incentives for productivity

complementarity free riding and the military expenditures of nato allies abstract this paper examines the major influences of an ally s demand for military expenditures demand equations are estimated for a sample of nato nations using the iterative seemingly unrelated regressions technique evidence is presented indicating that structural changes occured in these equations in the early 1970s this instability is the predicted effect of the doctrine of flexible response adopted by nato during this time period the statistical tests show that the medium sized nuclear powers military expenditures responded identically to income and defense spillins the same held true for the lowland allies

asymmetric two stage group rent seeking comparison of two contest structures two variations of a two stage rent seeking contest areconsidered in the first stage of the between groupmodel groups compete through the expenditure of resources bytheir members based on group expenditures one winning groupis probabilistically determined on the second stage membersof the winning group compete with one another for an exogenousprize in the semi finals model a player is chosen fromeach group and then these players compete for the prize groups differ in size or in their valuation of the prize subgame perfect equilibrium solutions are constructed forthese two contest structures

land tenure choice in chinese villages the rational versus the political model the rational and political decision models are developed and tested for the land tenure choice in rural china a novelty of the test is to link the collective decision with general relative factor scarcities competing hypotheses are developed for the two models and tested with panel data collected on 83 chinese villages the results show that neither model is strongly rejected although the political model fares slightly better in more sophisticated econometric testing this suggests that popular political participation is emerging in chinese villages implications of this finding to chinese land policy are discussed

legal fee restrictions moral hazard and attorney rents abstract when attorney effort is unobservable and certain other simplifying assumptions such as risk neutrality hold it is efficient for an attorney to purchase the rights to a client s legal claim however the american bar association model rules of professional conduct prohibit this arrangement we show that this ethical restriction which is formally equivalent to requiring a minimum fixed fee of zero can create economic rents for attorneys even though they continue to compete along the contingent fee dimension the contingent fee is not bid down to the zero profit level because such a fee does not induce sufficient attorney effort we thereby provide a political economy explanation for these restrictions

from privatization to deindustrialization implications of chinese rural industry and the ownership debate revisited summary this paper examines the evolution of chinese rural industry since the rural reform in the late 1970s and revisits the debate on the role of ownership based on a case study of w county in southern jiangsu province as well as drawing on national data the author shows that the community based market dynamic had been a key factor in the expansion of rural enterprises and that its weakening in recent years has led to the closing of village enterprises and deindustrialization of the countryside large scale land expropriation sponsored by local government is the principal factor responsible for the change

option bounds in discrete time extensions and the pricing of the american put in a recent paper perrakis and ryan 1984 upper and lower bounds on european option prices were derived in discrete time these bounds were based on an extension of the discrete time derivation of black scholes pricing first presented in the work of black and scholes 1973 the bounds are functions of the stock and exercise prices the riskless rate of interest the time to maturity and the entire distribution of stock returns in other words they need more information than black scholes for their computation and the derived results are weaker on the other hand they are significantly more general in their assumptions insofar as they do not rely on the continuous time riskless hedge of the original black scholes derivations or on the assumption of a binomial distribution of stock returns used in cox ross and rubinstein 1979 and rendleman and bartter 1979 for this reason they are likely to be particularly useful in valuing options on assets for which the black scholes methodology is clearly this paper generalizes and tightens the discrete time bounds for european options and develops similar bounds for american puts the stock return has a distribution with a finite range and is subject to the restriction that the stock be nonnegative beta the bounds are derived from arbitrage portfolios using the stock the option and the riskless asset they converge to the previous ones when the range coincides with the nonnegative real line and they both become equal to the binomial option model under a two state stock return upper and lower bounds for the american put are derived recursively by the same method with arbitrage portfolios involving the stock the riskless asset and american and european puts an example is provided with a trinomial return distribution part of this research was done while i was a visiting professor 1983 84 ecole superieure de commerce et d administration des entreprises reims france i wish to thank peter ryan albert madansky and a referee of this journal for helpful advice and comment while retaining all responsibility for any remaining errors or omissions 1 note however that this is also true of other blackscholes generalizations such as merton 1976

observable contracts strategic delegation and cooperation the role of commitments in noncooperative games is well acknowledged and documented one way to achieve commitments is by letting delegates represent the players of a game in this paper the authors study a delegation game in which the players can use agents strategically to play on their behalf and the contracts they sign with them are common knowledge they show that in such cases every pareto optimal outcome of the game can become the unique subgame perfect nash equilibrium of the delegation game the authors demonstrate this result by discussing the cournot type duopolistic game copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

household resources transaction costs and adjustment through land tenancy this paper examines the role of household endowments of imperfectly tradeable factors of production e g male female child labor and draft animals on land leasing an explicit attempt is made to account and test for the role of transaction costs on the incidence and extent of adjustment taking place through the land lease market the econometric model is implemented using pooled data from six villages in the semiarid region of india the results confirm the significant role of nontradeable family endowments and indicate the presence of frictions in the land tenancy market

collective rent dissipation the theory of rent seeking was initiated by tullock 1967 1980 followed by krueger 1974 and posner 1975 and more recently extended in various directions by allard 1988 appelbaum and katz 1986a b c gradstein and nitzan 1989 hillman and katz 1984 1987 hillman and samet 1987 hillman and riley 1989 katz et al 1990 long and vousden 1987 ursprung 1990 and varian 1989 the purpose of this paper is to extend this theory by introducing the possibility of collective group rent seeking with voluntary individual decisions regarding their extent of participation in the collective rent seeking efforts

seeking rents by setting rents the political economy of rent seeking in recent years there has been a large number of papers on the subject of rent seeking most such works on rent seeking have taken the rent as exogenously determined by regulators regulators howeve r may also be expected and indeed have been shown to be rent seeke rs and hence the determination of the rent itself should be endogeniz ed to reflect the fact that the rent setters are themselves rent se ekers in this paper the authors do this by presenting an analysis o f the interaction of regulators firms and consumers within a rent s eeking framework where all three groups are assumed to be self motiva ted the analysis is carried out under alternative assumptions regard ing the nature of the market and the reaction functions of the partic ipants policy implications are drawn where appropriate copyright 1987 by royal economic society

information and endogenous delegation in a rent seeking contest we offer a new explanation for the occurrence of delegation in rent seeking contests we consider a two player contest for a prize of common value the players only know that the prize is high or low with given probabilities each player can hire a delegate to act on his behalf after a delegate is hired she privately observes the true value of the prize we derive the conditions under which respectively no player only one player or both players delegate in equilibrium jel d7

the crash of ʼ87 was it expected the evidence from options markets transactions prices of s p 500 futures options over 1985 1987 are examined for evidence of expectations prior to october 1987 of an impending stock market crash first it is shown that out of the money puts became unusually expensive during the year preceding the crash second a model is derived for pricing american options on jump diffusion processes with systematic jump risk the jump diffusion parameters implicit in options prices indicate that a crash was expected and that implicit distributions were negatively skewed during october 1986 to august 1987 both approaches indicate no strong crash fears during the 2 months immediately preceding the crash attempts to explain what caused the stock market crashes around the world in october 1987 have suffered from the paucity of major economic developments occurring around that time that could have triggered the crashes shifting expectations regarding monetary policy foreign investors fears of a dollar decline increasing riskiness of assets none of these appeared major enough if present at all to explain the magnitude of the crashes and although portfolio insurance strategies could conceivably magnify the effects of a jump in fundamentals the initiating jump in fundamentals appears to be lacking

the optimal allocation of prizes in contests we study a contest with multiple not necessarily equal prizes contestants have private information about an ability parameter that affects their costs of bidding the contestant with the highest bid wins the first prize the contestant with the second highest bid wins the second prize and so on until all the prizes are allocated all contestants incur their respective costs of bidding the contest s designer maximizes the expected sum of bids our main results are 1 we display bidding equlibria for any number of contestants having linear convex or concave cost functions and for any distribution of abilities 2 if the cost functions are linear or concave then no matter what the distribution of abilities is it is optimal for the designer to allocate the entire prize sum to a single first prize 3 we give a necessary and sufficient conditions ensuring that several prizes are optimal if contestants have a convex cost function

the economic design of sporting contests what is the optimal number of entrants in a race or the optimal number of teams in a baseball league what is the optimal structure of prizes for a golf tournament or degree of revenue sharing for a football championship how evenly balanced should the competing teams be in the nascar or formula one championships what is the maximum number of entrants per nation to the olympic games that should be permitted what quota of qualifying teams to the soccer world cup should be allocated to the developing nations

the demand for military expenditures an international comparison earlier studies have explained inter country variations in the share of gnp devoted to military expenditures by international spillovers and by differences in the threat of attack related to relative incomes in this paper we use the theory of public choice to explain these differences we attempt to measure the importance of both international spillovers and relative incomes along with two other factors the tax price elasticity of demand and economies of scale in the consumption of security we find that international spillovers are significant and positive that the income elasticity of demand is greater than unity that the tax price elasticity of demand explains part of observed inter country differences and that there are considerable economies of scale in the consumption of military spending finally between 1960 and 1975 there was apparently a substantial increase in the value which each country derived from a dollar of military spending by its allies this phenomenon which seems related to the increased importance of deterrent weapons has tended to induce individual alliance members to reduce the share of their national income devoted to defense

tenancy and family resources a model and some empirical analysis abstract in this paper we discuss with the help of a simple model the role of family resource endowments in determining the extent of land leased in or leased out by a household this becomes important when the market for some of these resources is either not functioning at all or is functioning imperfectly we focus on three such resources which have some relevance in indian agriculture these are 1 the family s managerial skill 2 its endowment of human labour and 3 its endowment of draft animal labour household level data from six villages of maharashtra and andhra pradesh are also utilized to test some of the hypotheses

optimal design of research contests procurement of an innovation often requires substantial effort by potential suppliers motivating effort may be difficult if the level of effort and quality of the resulting innovation are unverifiable if innovators cannot benefit directly by marketing their innovations and if the buyer cannot extract up front payments from suppliers we study the use of contests to procure an innovation in such an environment an auction in which two suppliers are invited to innovate and then bid their prizes is optimal in a large class of contests if contestants are asymmetric it is optimal to handicap the most efficient one

land inheritance and market transactions in uganda studies on the role of nonmarket land transactions remain limited this paper addresses two questions is land inheritance driven by underdeveloped land markets how does land inheritance influence land disposal and acquisition we use a switching regression model on household data from rural uganda we find that the initially landless or near landless households due to little or no land inheritance obtain land through land markets while those that are land rich dispose of land through land sales and bequests the results suggest that a process of land equalization is unfolding within the sample

option pricing bounds in discrete time upper and lower bounds are derived for call options traded at discrete intervals these bounds are independent of assumptions on the stock price distribution other than a restriction satisfied by the stock being non negative beta the development of the bounds relies on the single price law and arbitrage arguments both single period and multiperiod results are produced and put option bounds follow by extension the bounds exist as equilibrium values given a consensus on stock price distribution they are also valid for empirical studies being adjustable for dividends and commissions following the impetus of the black scholes pricing model the majority of option analyses have been in continuous time such approaches have relied on the formation of perfect riskless hedges involving the option its underlying security and a riskless asset since the hedge must be continuously revised and maintained while actual trading opportunities are discrete this crucial assumption limits the accuracy and applicability of the black scholes and related formulae in fact the black scholes formula can only be considered as a valid approximation to the discrete time solution merton 8 p 663 while the closeness of that approximation has not been ascertained in general 1 earlier discrete models such as boness 3 and samuelson 12 have been succeeded by those of brennan 5 cox et al 6 and rubinstein 11 in which distributional restrictions are imposed on share returns usually the discrete formula converges to the black scholes expression under appropriate limit conditions using the rubinstein 11 approach we derive upper and lower bounds for option prices with both a general price distribution and discrete trading opportunities the bounds are functions of the share and exercise prices the riskless rate of interest the distribution of the share price change per period and the number of periods of expiration of the option the lower bound is tighter than that of merton 7 derived from more general arbitrage considerations while being less exact than the results already mentioned for restricted distributions

rigging the lobbying process an application of the all pay auction textabstractin a world where a politician can explicitly auction off a prize to the high bidder the standard auction literature can be used to analyse political behavior the justice system however precludes politicians from explicitly selling the prize to the highest bidder thus politicians cannot let it become public knowledge that they are in the business of selling political favors an institution has emerged in political markets to overcome this constraint which are termed as lobbying lobbyists make implicit payments to the politician through campaign contributions if these up front payments were rebated to those failing to receive the prize it would be clear that the politician was selling favors this article has examined an interesting principle arising in all pay auctions this principle states that a politician wishing to maximize political rents may find it in his best interest to exclude certain lobbyists from participating in the lobbying process particularly lobbyists valuing most the political prize

conflict and rent seeking success functions ratio vs difference models of relative success the rent seeking competitions studied by economists fall within a much broader category of conflict interactions that also includes military combats election campaigns industrial disputes lawsuits and sibling rivalries in the rent seeking literature each party s success pi which can be interpreted either as the probability of victory or as the proportion of the prize won has usually been taken to be a function of the ratio of the respective resource commitments alternatively however pi may instead be a function of the difference between the parties commitments to the contest the contest success function csf for the difference from is a logistic curve in which as is consistent with military experience increasing returns apply up to an inflection point at equal resource commitments a crucial flaw of the traditional ratio model is that neither onesided submission nor two sided peace between the parties can ever occur as a cournot equilibrium in contrast both of these outcomes are entirely consistent with a model in which success is a function of the difference between the parties resource commitments

the strategic choice of managerial incentives do firms with separate owners and managers maximize profits we address this question for an oligopoly where managers compete in quantities or prices as in the cournot or bertrand models and owners choose their managers incentives we find that there is a strategic aspect in the problem of selecting incentives and that profit maximizing behavior does not result in particular in the oligopoly we study the behavior of firms competing in quantity price more closely resembles perfectly competitive collusive behavior than cournot bertrand behavior

equilibrium contingent compensation in contests with delegation we consider two player contests in which each player hires a delegate who expends his effort to win a prize on the player s behalf endogenizing delegation contracts we focus on the equilibrium contracts between the players and their delegates we first show that each player s equilibrium contract is a no win no pay contract then we examine the delegates equilibrium compensation spreads effort levels probabilities of winning expected payoffs and the players equilibrium expected payoffs we show that economic rents for the delegates may exist

toward a theory of induced institutional innovation in this paper we elaborate a theory of institutional innovation in which changes in the demand for institutional innovation are induced by changes in relative resource endowments and by technical change we illustrate from agricultural history how changes in resource endowments and technical change have induced changes in private property rights and in the development of non market institutions we also consider the impact of advances in social science knowledge and of cultural endowments on the supply of institutional change in a final section we present the elements of a model of institutional innovation that maps the relationships among resource endowments cultural endowments technology and institutions

the development of the land lease market in rural china this paper examines the development of the land lease market in rural china special attention is paid to productive heterogeneity among farmers and the openness of the labor market in activating the land lease market a theoretical model is employed to explore the underlying connections an econometric model is implemented using a two period panel data set gathered in three counties of china s zhejiang province the results show that productive heterogeneity and a freer labor market do promote more land leases the implications for the institutional change literature are discussed

the impact of regional and institutional factors on labor productive performance evidence from the township and village enterprise sector in china this paper investigates the determinants of township and village enterprise tve labour productivity in china examining behaviour at both the national and regional levels the results suggest that human capital the real wage level foreign intensity export intensity capital investment and firm size are the most important factors affecting labour productivity at the national level but their relative importance varies significantly between the regions the results also indicate that government privatization reforms had a major impact on labour productivity in the tve sector across the regions

tournament rewards and risk taking this article considers a lazear rosen tournament model where agents can influence both the spread of their output distribution risk taking and its mean the unique equilibrium induces excessive risk taking and a low level of effort by modifying the tournament to give the highest prize to the agent with the most moderate output a low level of risk taking and high level of effort can be sustained as an equilibrium the first result can be useful to understand the relative performance evaluation puzzle of executive compensation and the second result can be useful to understand puzzling workplace norms promoting mediocrity

pricing catastrophe options with stochastic claim arrival intensity in claim time abstract we model claim arrival and loss uncertainties jointly in a doubly binomial framework to price an asian style catastrophe cat option with a non traded underlying loss index using the no arbitrage martingale pricing methodology we span these uncertainties by benchmarking to the shadow price of a one claim bond and the premium of a reinsurance contract we implement a stochastic time change from calendar time to claim time to more efficiently price the cat option as a random sum a binomial sum of claim time binomial asian option prices this choice of the operational time dimension allows us to incorporate different patterns of catastrophe arrivals by adjusting the claim arrival probability we demonstrate this versatility by incorporating a mean reverting ornstein uhlenbeck intensity arrival process simulation results verify our model predictions and demonstrate how the claim arrival probability varies with the expected claim arrival intensity

the potential of land rental markets in the process of economic development evidence from china abstract we develop a model of land leasing with agents characterized by unobserved heterogeneity in ability and presence of an off farm labor market in this case decentralized land rental may contribute to equity and efficiency goals and may have several advantages over administrative reallocation the extent to which this is true empirically is explored using data from three of china s poorest provinces land rental markets and administrative reallocation reallocate land to those with lower endowments but the former are more effective in doing so and have a bigger productivity enhancing effect information on hypothetical market participation suggests that reducing transaction costs in land rental markets could help to realize significant additional productivity gains

stochastic dominance bounds on derivatives prices in a multiperiod economy with proportional transaction costs by applying stochastic dominance arguments upper bounds on the reservation write price of european calls and puts and lower bounds on the reservation purchase price of these derivatives are derived in the presence of proportional transaction costs incurred in trading the underlying security the primary contribution is the derivation of bounds when intermediate trading in the underlying security is allowed over the life of the option a tight upper bound is derived on the reservation write price of a call and a tight lower bound is derived on the reservation purchase price of a put these results jointly impose tight upper and lower bounds on the implied volatility

rural industry and labor market integration in eastern china abstract this paper tests the competitiveness of the labor market in a semi industrialized county located in eastern china labor market segmentation is linked to the degree of government interventions and the management structures of the local enterprises and two forms of rationing labeled entrance and time rationing are identified a test based on income maximizing behavior is developed to find the form of rationing that is consistent with the data the results show that the labor market is not competitive and time rationing prevails in the county in addition industrial wages are not responsive to experience and education but strongly biased against women and varying to government interventions

an econometric technique for comparing median voter and oligarchy choice models of collective action the case of the nato alliance this paper devises an empirical methodology for discriminating between the median voter model and the oligarchy choice model when applied to the collective provision of a public good in particular an empirical methodology is engineered so that a nested test procedure can evaluate competing models the authors apply this methodology to examine the demand for military activities of ten members of the nato alliance a two stage least squares procedure corrected for autocorrelation is used to estimate the demand equations test results vary some allies abide by the median voter model others by the oligarchy model and still others by neither copyright 1991 by mit press

the structure of ownership and the theory of the firm the separation of ownership from control produces a condition where the interests of owner and of ultimate manager may and often do diverge and where many of the checks which formerly operated to limit the use of power disappear in creating these new relationships the quasi public corporation may fairly be said to work a revolution it has divided ownership into nominal ownership and the power formerly joined to it thereby the corporation has changed the nature of profit seeking enterprise 1

endogenous timing of contest with asymmetric information simultaneous moves have been conventionally assumed in modeling rent seeking competition however in reality many forms of contests involve contestants sequentially choosing their effort entries this study allows agents to choose the timing of their moves before the contest takes place in contrast to the previous literature we introduce information asymmetries across agents we find that in all sequential move equilibria the uninformed agent moves first more generally we show that the order of agents moves in a sequential contest is a regularity stemming from information asymmetries furthermore under plausible assumptions sequential moves pareto dominate simultaneous moves from the view point of the players and also result in lower rent seeking expenditures our result explains the timing pattern in national presidential conventions observed from 1948 through 2004 our result also applies to many other formal or informal institutions which give rise to sequential contests

in defense of lawyers moral hazard as an aid to cooperation abstract this paper studies strategic delegation in two player contests for an indivisible prize as in e g litigation where one party s probability of winning is determined by the relative investments of both even though neither player stands to gain anything from precommitment both players ex ante prefer compulsory representation by agents e g lawyers whose efforts are unobservable this delegation equilibrium is unaffected by secret renegotiation opportunities equivalently it does not matter whether contracts are observable or not hence the paper points out a role for delegation with moral hazard in facilitating cooperation an effect quite separate from precommitment journal of economic literature classification numbers c72 d72 d82 k41

labor migration and returns to rural education in china this paper provides an answer to the following question why do empirical studies find low returns to schooling in rural china and yet the schooling rates are high i find that schooling played a significant role in raising the accessibility of urban formal employment to rural people in the late 1970s and early 1980s in the face of the government s restrictive policy on labor migration from rural to urban areas the large urban rural income difference provided a strong incentive for senior high school education the theory also explains the drop in the senior high school attendance in the mid 1980s

food insecurity income inequality and the changing comparative advantage in world agriculture i would like to argue in this article that in the process of economic development in land poor countries in asia agriculture faces three distinctly different problems food insecurity sectoral income inequality and the declining food self sufficiency associated with the declining comparative advantage in agriculture at the high income stage massive imports of food grains to asia if they occur will aggravate the world food shortage which will have significant implications for the poverty incidence in the world i argue that in order to avoid such a tragedy asia should expand farm size to reduce labor cost by adopting large scale mechanization sub saharan africa should realize a green revolution in grain production and latin america should further expand its grain production capacity

effort levels in a cournot nash contest with asymmetric information abstract many contests exist where one player does not know his opponent s value of a fixed prize e g unobservable non market preferences for preservation this paper explores how changes in the nature of a one sided information asymmetry affect effort levels in a cournot nash contest the results indicate that the uninformed player s effort is an uncertain input such that his effort is inversely related to risk this reduces his average odds of success comparative static results are driven by the perceived odds of success and risk for the uninformed player and the actual odds of success for the informed player

fair insurance guaranty premia in the presence of risk based capital regulations stochastic interest rate and catastrophe risk abstract a multiperiod model is developed to measure the costs posed to the guaranty fund in a setting that incorporates risk based capital regulations interest rate risk and the possibility of catastrophic losses the guaranty contract is modeled as a put option on the asset of the insurance company with a stochastic strike price and an uncertain maturity the impacts of the key factors of this model are examined numerically and shown to make material differences in the costs to the guaranty fund

land rental markets in transition theory and evidence from hungary summary this paper analyzes the determinants of household farms participation in land rental markets in transition countries we derive several hypotheses on the impact of households human capital land endowment land quality and prices transaction costs rural credit and labor market constraints our empirical analysis uses data from a representative survey of more than 1 400 hungarian household farms and hungarian official statistics land rental markets reallocate land to households with better farm management capacities households combine buying and renting of land to extend their farms land ownership is fragmented and land consolidation occurs through renting the domination of corporate farms in some regions restricts households access to land

induced institutional change or transaction costs the economic logic of land reallocations in chinese agriculture abstract the communal land rights system in china which combines individualised farming with periodic land reallocations provides a good case for testing the economic logic of land reallocations analysis of the results of a unique village survey reveals that a village s choice of land reallocation type partial or large in scale is significantly affected by transaction cost considerations which vary according to village topography and size rather than concerns for economic efficiency tenure security the latter of which is a proxy for the theory of induced institutional change more specifically villages with complex topographies tend to favour partial land reallocation whereas larger settlements tend to reallocate land more thoroughly

comparative statics of contests and rent seeking games this paper develops the comparative statics properties of a contest encountered in patent races and rent seeking games the author shows that symmetric equilibrium expenditure and profit per player decrease with the number of competitors and the discount rate but increase with the value of the prize a fundamental lemma established in the paper shows that a stability condition usually imposed on the model is automatically satisfied the author identifies a class of likelihood or hazard rate functions for which aggregate expenditure increases with the number of competitors and total profits converge to zero copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

why do entrepreneurs enter politics evidence from china this article examines the determinants of the entrepreneur s political participation by employing a unique matched firm institution data set from china we find that the likelihood of an entrepreneur s participation can be explained by the underdevelopment of markets and market supporting institutions according to our estimates the probability of entering politics decreases by 8 20 from the mean when the institutional indices improve by one standard deviation our findings support the view that the institutional environment shapes the private entrepreneur s motivation to participate in politics they also provide an example of how private entrepreneurs respond to state market failure in developing and transition countries jel g1 h00 o10 p2 p3

public versus private ownership of firms evidence from rural china why are many of china s successful rural enterprises publically owned by local communities using a set of provincial data we find that the share of community public firms township village enterprises or tves relative to private enterprises is higher where the central government s influence is greater the community government s power is stronger and the level of market development is lower we also find that tves help achieve the community government s goals of increasing government revenue rural nonfarm employment and rural income however tves do not increase rural income given the levels of nonfarm employment and local public goods provision indicating possible inefficiency as compared with private enterprises