transaction costs in the theory of unemployment this paper addresses the problem of accounting theoretically for the persistence of large scale unemployment it briefly reviews some of the well known shortcomings of the keynesian account based upon sticky wages and prices and upon robert clower s 1965 concept of effective demand arguing that these shortcomings can be seen as a failure explicitly to integrate transaction costs into the theory of unemployment the main constructive contribution of the paper is an example of a simple macro model along the lines of robert barro and herschel grossman 1971 in which transaction costs are made explicit an essential part of this example is an externality of the sort suggested by peter diamond 1982 the example provides an account of persistent unemployment with many keynesian features yet without some of the keynesian shortcomings in particular it assumes perfect wage and price flexibility

evaluating natural resource investments notwithstanding impressive advances in the theory of finance over the past 2 decades practical procedures for capital budgeting have evolved only slowly the standard technique which has remained unchanged in essentials since it was originally proposed see dean 1951 bierman and smidt 1960 derives from a simple adaptation of the fisher 1907 model of valuation under certainty under this technique expected cash flows from an investment project are discounted at a rate deemed appropriate to their risk and the resulting present value is compared with the cost of the project this standard textbook technique reflects modern theoretical developments only insofar as estimates of the discount rate may be obtained from crude application of single period asset pricing theory but see brennan 1973 bogue and roll 1974 turnbull 1977 constantinides 1978 the inadequacy of this approach to capital budgeting is widely acknowledged although not widely discussed its obvious deficiency is its the evaluation of mining and other natural resource projects is made particularly difficult by the high degree of uncertainty attaching to output prices it is shown that the techniques of continuous time arbitrage and stochastic control theory may be used not only to value such projects but also to determine the optimal policies for developing managing and abandoning them the approach may be adapted to a wide variety of contexts outside the natural resource sector where uncertainty about future project revenues is a paramount concern

option values to conservation and agricultural price policy application to terrace construction in kenya policy reforms to liberalize agricultural markets in developing countries are likely to influence both the level and the variability of prices while considerable attention has been given to the impact of changes in price level on soil and water conservation there has been relatively little analysis of the role of price variability in conservation decisions we present a model of investment under uncertainty to analyze the effect of both level and variability of prices on the decision to invest in conservation the model is applied to adoption of fanya juu terraces in eastern kenya

investment in site specific crop management under uncertainty implications for nitrogen pollution control and environmental policy this paper applies an option pricing model to analyze the impact of uncertainty about output prices and expectations of declining fixed costs on the optimal timing of investment in site specific crop management sscm it also analyzes the extent to which the level of spatial variability in soil conditions can mitigate the value of waiting to invest in sscm and influence the optimal timing of adoption and create a preference for custom hiring rather than owner purchase of equipment numerical simulations show that while the net present value npv rule predicts that immediate adoption is profitable under most of the soil conditions considered here recognition of the option value of investment indicates that it is preferable to delay investment in sscm for at least 3 years unless average soil quality is high and the variability in soil quality and fertility is high the use of the option value approach reveals that the value of waiting to invest in sscm raises the cost share subsidy rates required to induce immediate adoption above the levels indicated by the npv rule

the effects of commodity price stabilization programs in this paper the authors analyze the effects of commodity programs in which the government attempts to support and stabilize price through open market purchases and sales specifically they as sess the effects of such programs on the u s soybean market using a rational expectations model that allows for private storage expected price responsive production and arbitrary support and release price s a salient feature of the model is that private storage and product ion behavior adjusts to changes in government policy stochastic simu lations of the market model demonstrate that price stabilization prog rams can reduce long run market price and destabilize producer revenu e copyright 1988 by american economic association

on the pitfalls of multi year rollover hedges the case of hedge to arrive contracts it is shown that it is theoretically infeasible for multi year rollover hedge to arrive contracts and for rollover hedges in general to succeed at locking in high current prices for crops to be harvested one or more years into the future the study utilizes 107 years of data to present strong empirical evidence that the corn market behaves remarkably similarly to what price theory predicts results also confirm that short historical time series are unreliable for predicting rare events hence empirical studies of risk management contracts capitalizing on unusual occurrences should use samples sufficiently large to contain a meaningful number of relevant observations copyright 2001 oxford university press

how much of commodity price behavior can a rational expectations storage model explain a rational expectations competitive storage model was applied to the u s corn market to assess the aptness of this framework in explaining monthly price behavior in an actual commodity market relative to previous models extensive realism was added to the model in terms of how production activities and storage costs are specified by modeling convenience yield backwardation in prices between crop years did not depend on the unrealistic assumption of zero ending stocks our model generated cash prices that were distributed with positive skewness and kurtosis and mean and variance that increased over the storage season comparable to the persistence and the occasional spikes observed in commodity prices futures prices were generated as conditional expectations of cash prices at contract maturity and the variances of futures prices exhibited realistic time to maturity and seasonal patterns model realizations of cash and futures prices over many years were used to demonstrate the wide variety of price behaviors that could be observed in an efficient market with a similar market structure implying that economic and policy implications drawn from short historical samples of prices could be misleading

optimal storage by crop producers when post harvest marketing strategies are restricted by disallowing speculative purchases sales out of storage becomes an irreversible decision and the dynamic marketing problem becomes analogous to the optimal exercise of a financial option the optimal marketing strategy is to hold at low prices and to sell at high prices with a cutoff price function marking the boundary between low and high prices a method for estimating the cut off price function is developed and applied to illinois soybean prices the decision rule is demonstrated to result in substantial gains from storage copyright 2002 oxford university press

the inefficiency of interest rate subsidies in commodity price stabilization interest rate subsidies have been used to stimulate commodity stockholding with the intention of stabilizing prices however reductions in price variability can be achieved at less government cost using a direct storage subsidy and it is possible that an interest rate subsidy will increase price variability even though the interest subsidy increases mean stocks held these results are demonstrated using a stochastic dynamic programming model of optimal private storage with parameter values relevant to agricultural commodity markets and with particular reference to the u s soybean market

implications of commodity price behavior for marketing strategies prices of agricultural commodities have systematic dynamic components and many agricultural economists have thought that forecasts of this behavior ought to aid marketing decisions thereby raising producers returns but if commodity markets are pricing efficient then noncompetitive profit opportunities should be quickly arbitraged away thus a debate exists about the magnitude of the likely benefits of various marketing strategies herein we address the question what does the literature about commodity price behavior contribute to our understanding of the expected outcomes from alternative marketing strategies our brief answer is as follows spot prices in u s commodity markets typically behave in a way that is consistent with efficient markets systematic behavior persists because of the costs of arbitrage hence price forecasts in the public domain cannot be used to produce returns which are consistently above the competitive norm although low cost strategies to manage price risk exist evaluating the evidence on these topics is not easy however because the price generating processes are complex sometimes prices seem to behave as if a market is inefficient advice based on analyses using short samples should be used with great caution the remainder of the article elaborates

commodity prices and unit root tests price theory suggests that commodity prices should be stationary series yet tests for unit roots rather frequently imply that these prices are not stationary this seeming inconsistency is investigated by applying alternative specifications of unit root tests to prices of corn soybeans barrows and gilts and milk the preponderance of evidence suggests that nominal prices do not have unit roots but the results are sensitive to the specification of the test equation accounting for a structural change that shifts the mean appears to be an important issue in unit root tests

underemployment equilibrium with rational expectations in this paper i use some recent work in the microeconomics of imperfect information to construct a macro model the microeconomic theory suggests that atomistically competitive firms face kinked demand curves in this model there is a range of aggregate equilibria consistent with correct information i then show that individual firms can face a free rider problem in trying to move from one equilibrium to another by changing the price level monetary policy is not subject to this problem even if the policy is fully anticipated

some recent developments in futures hedging the use of futures contracts as a hedging instrument has been the focus of much research at the theoretical level an optimal hedge strategy is traditionally based on the expected utility maximization paradigm a simplification of this paradigm leads to the minimum variance criterion although this paradigm is quite well accepted alternative approaches have been sought at the empirical level research on futures hedging has benefited from the recent developments in the econometrics literature much research has been done on improving the estimation of the optimal hedge ratio as more is known about the statistical properties of financial time series more sophisticated estimation methods are proposed in this survey we review some recent developments in futures hedging we delineate the theoretical underpinning of various methods and discuss the econometric implementation of the methods

technology adoption decisions under irreversibility and uncertainty an ex ante appproach empirical results demonstrate that uncertainty about costs and requirements for environmental compliance is an important determinant of dairy producers investment behavior ex ante forecasting of how uncertainty and irreversibility are likely to affect producers responsiveness to agricultural technologies has implications for the design of environmental policies simulation modeling methods are described the empirical analysis focuses on texas producers propensity to adopt free stall dairy housing free stall investments offer advantages for both productivity augmentation and pollution abatement yet uncertainty and irreversibility are obstacles to adoption implications of this ex ante paradigm for policy design and implementation are discussed

technical change and irreversible investment under risk abstract a stochastic dynamic model was constructed to analyze investment decisions of an individual farmer under risk in the presence of irreversibilities embedded technical change and indivisible capital an analytical solution was obtained and its local behavior studied by numerical methods optimal investment is obtained by regulating the difference between the desired and actual capital stocks between two barriers that define an inaction interval while the desired capital drifts between the barriers no action is taken if the desired capital touches the upper barrier the farmer invests pushing the average efficiency of the actual capital stock up this in turn raises the desired capital even higher and contracts the inaction interval if these effects are strong enough the farmer will invest again until the potential gains of the technological package are exhausted if the desired capital falls enough the farmer disinvests pushing down the average productivity and expanding the inaction interval disinvestment continues until it stops either because the inaction interval becomes so wide that it is no longer optimal to disinvest or because the actual capital stock is so small that it is no longer profitable to produce

what causes commodity price backwardation a recently proposed explanation for futures price backwardation is examined an equilibrium model with spatial heterogeneity leads to the interpretation of backwardations as mismeasurement by the analyst however the model predicts that backwardations are more affected by the location of stocks than by their aggregate level empirical examination of the united states corn market fails to support this result

an extreme keynesian macro economic model with formal micro economic foundations this paper presents a formal general equilibrium model of a monetary economy in which agents decision rules are derived from the underlying preferences technology endowments and information firms face kinked demand curves for the reason given by j stiglitz 1979 customers know the price at their current firm but not at other firms the results are compatible with extreme keynesian macroeconomic predictions as presented by g woglom 1982 there is no automatic tendency to full employment and a change in the money supply may cause a permanent change in real output with no change in prices

marketing performance of oklahoma farmers relative to marketing most agricultural commodities the dominant academic paradigm is the efficient market hypothesis that suggests that little profits can be made by trying to time when to sell wheat the paradigm says that farmers will on average receive an average price a view that has been expounded at cooperative extension meetings and in farm press articles is that most farmers receive a below average market price for example at a recent farm bureau meeting the master of ceremonies made the statement producers tend to sell on the bottom third of the market also in a mid march 2001 issue of the progressive farmer d r g a barnaby from kansas state university was quoted as saying maybe that s why most farmers sell in the bottom third of the market batchelor p 25 1 the research question then is do farmers really sell in the bottom third of the market or is this just a clever marketing gimmick by market advisory services the idea of farmers selling in the bottom third of the market is not without theoretical foundation results from behavioral finance find that people have systematic psychological biases brorsen and anderson these biases could result in herding behavior in such a way that the majority could always be wrong a study by slusher based on a narrow survey of indiana corn farmers and conducted in 1986 is the only one that we know of that has addressed the issue of actual farmer perfor

the power of beaver s u against a variance increase in market model residuals to detect variance effects researchers have primarily relied on the square of the standardized market model residual i e beaver s u 1 a similar statistic the absolute value of the standardized residual has also been used for this purpose we call this statistic may s u 2 the rationale for using either beaver s u or may s u is that in a portfolio a variance increase will be reflected in unusually large negative and positive residuals these will tend to cancel out in a test based on ordinary residuals but squared residuals or their absolute values will yield a cumulative effect if the residuals are normally distributed as assumed by the linear model then beaver s u is the best statistic being most likely to detect a variance effect weekly and daily residuals are not normally distributed they are leptokurtic heavy tailed and skewed marais 1984 notes that the normal approximation to beaver s u is unreliable for significantly leptokurtic residuals and attempts to correct this unreliability through bootstrapping marais does not however consider the impact of leptokurtosis on the optimality of beaver s u we show that beaver s u is no longer optimal for leptokurtic residuals and that it is dominated by may s u

a simple macroeconomic model with monopolistic firms this paper presents a simple macroeconomic model in which firms outputs are imperfect substitutes and explores the macroeconomic implications of monopolistic competition the model is classical in some respects but keynesian in others multiple or unstable equilibria are not unlikely permanent price controls will in principle be desirable since they allow a permanent and efficient increase in aggregate output small costs of price adjustment may induce large deviations of output from the natural rate fiscal policy will generally affect aggregate output but the sign and magnitude of the government expenditure multiplier cannot be determined a priori

mean reversion in equilibrium asset prices evidence from the futures term structure we use the term structure of futures prices to test whether investors anticipate mean reversion in spot asset prices the empirical results indicate mean reversion in each market we examine for agricultural commodities and crude oil the magnitude of the estimated mean reversion is large for example point estimates indicate that 44 percent of a typical spot oil price shock is expected to be reversed over the subsequent eight months for metals the degree of mean reversion is substantially less but still statistically significant we detect only weak evidence of mean reversion in financial asset prices in this study we provide evidence of mean reversion in the prices of several real and financial assets rather than examining evidence of ex post reversion using time series of asset prices we use price data from futures contracts with varying delivery horizons to test whether investors expect asset prices to revert this approach offers two advantages first since futures prices are readily available for many markets our procedure can be implemented for many assets including those for which reliable spot price data is elusive second there is little ambiguity as to the source of any mean reversion detected using our method subject only to the maintained assumption that the no arbitrage cost of carry condition holds our test detects mean reversion that is expected to occur in equilibrium but has no power to detect mean reversion resulting from noise or inefficiencies our methodology focuses on relations between price levels and the slope of the futures term structure defined as the change across delivery dates in the futures prices observed on a given trading date an inverse relation between prices and the futures term slope constitutes evidence that investors expect mean reversion in spot prices to illustrate initially assume there are no

can real option values explain apparent storage at a loss since decisions to sell grain are irreversible waiting to sell grain can have a real option value this real option value may explain why producers appear to store too long a new seasonal mean reversion model is estimated that allows prices to be a random walk with drift within a season but mean reverting across crop years unless prices are extremely low selling before mean reversion begins is optimal thus the real option value of waiting does not explain why some producers seem to store at a loss in the latter part of crop years

the long term structure of commodity futures futures markets on agricultural commodities typically trade with maximum maturity dates of less than four years if these markets did trade with maturities eight or ten years distant futures prices would have value as price forecasts and as a way to structure long term swaps and insurance contracts agricultural commodity markets generally exhibit mean reversion in spot prices and convenience yields spot markets also exhibit seasonality this study develops and implements a procedure to generate long term futures curves from existing futures prices data on lean hogs and soybeans are used to show that the method provides plausible results copyright 2012 oxford university press

economic behavior under uncertainty a joint analysis of risk preferences and technology a method is developed to estimate jointly risk preferences and technology under general conditions the approach is illustrated in an application to the analysis of u s corn soybean acreage decisions over time the results provide useful information on the nature of farmers risk preferences and on the influence of price risk and production risk on acreage allocation and farmers welfare copyright 1996 by mit press

earnings announcements and competing information abstract we investigate whether competing information primarily analyst reports reduces the usefulness of earnings announcements inconsistent with the view that information in analyst reports substitutes for earnings announcements we find a positive relation between absolute abnormal returns to the two types of disclosures this positive relation also characterizes subsequent period analyst reports relative to current period earnings announcements we also find that aggregate absolute reactions to both types of disclosures increased over 1986 1995 as a whole these results provide little support for the view that the informativeness of earnings announcements is eroded by competing information in the form of analyst reports

is investment time irreversible some empirical evidence for disaggregated uk manufacturing data it has long been suggested that investment may be time irreversible and consideration of the option value of waiting to invest has aroused renewed interest in this issue this study tests for time irreversibility in uk investment according to disaggregation by type of investment expenditure and across manufacturing sector groupings the test results reported indicate that the irreversibility of investment patterns varies not only from industry to industry but also according to the type of capital being purchased with significant time irreversibility detected in gross fixed capital formation and aggregate vehicles expenditure and industrial sector groupings comprising fuels and oil refining engineering and vehicles and textiles and leather however only in the first and last of these series is time irreversibility attributable to non linearities in the underlying data generating process and consistent with threshold effects which may be associated with s s type models of investment dynamics

detecting contemporaneous security market reactions to a sequence of related events this paper describes results of a study of the empirical properties of two statistics which extend security return based test statistics used in previous studies of contemporaneous market reactions to events 1 the first called the h statistic is a generalization of the cumulative average residual car statistic the procedure employed to test the significance of the h statistic extends the generalized least squares approach of collins rozeff and salatka 1982 and collins and dent 1984 the second called the g2 statistic is a generalization of the idea first introduced by beaver 1968 who squared residuals in order to detect market reactions even if the average reaction was zero the procedure we employed to test the significance of the g2 statistic has its closest antecedents in patell 1976 and in gonedes 1975 2 we might also note here that schipper and thompson 1983 1985 propose an alternative framework within which tests similar to ours can be conducted in our study empirical distributions of h and g2 statistics were generated under the null hypothesis that there was no market reaction

on the relationship between analyst reports and corporate disclosures exploring the roles of information discovery and interpretation abstract we examine the relationship between analyst research and corporate earnings announcements to explore the relative importance of information discovery versus interpretation of previously released information using equity market reaction to capture information content we find that information discovery interpretation dominates in the week before after firms announce their earnings in addition we find that the interpretation role increases in importance with the difficulty of financial accounting information analysis of all weeks surrounding earnings announcements shows that the information discovery role is overall more important we are able to reconcile this result with the opposite finding in francis et al 2002

estimating irreversible investment with financial constraints an application of switching regression models this analysis investigates irreversible investment with financial constraints when investment is irreversible zero investment can be optimal and investment becomes lumpy because external funds are not a perfect substitute for internal funds financially constrained firms invest differently than unconstrained firms to incorporate both irreversibility and financial constraints into estimations the analysis develops a switching regression model that depends on the real options theory of capital investment the analysis investigates three us industries the oil refining communications equipment manufacturing and semiconductor manufacturing industries the analysis shows that internal funds affect investment if a firm is financially constrained