public employment and the welfare state in sweden this is a nontechnical summary of a much longer study which will appear with the same title in richard freeman birgitta swedenborg and robert topel eds forthcoming i am especially indebted to henry ohlsson and birgitta swedenborg and to stan engerman vic fuchs assar lindbeck stephen lundgren and agnar sandmo for comments on initial drafts i alone am responsible for the views expressed here

energy security in bangladesh perspective an assessment and implication energy is a key indicator of the nation s overall economic as well as social development looking at the present energy demand scenario in bangladesh electricity demand has significantly increased over the past years most of the bangladesh s power plants are heavily dependent on expensive imported fossil fuel energy resources thus the power failure has become an acute problem for the country and adversely affects the socio economic development of the country consequently the shortage and constraint in availability of fossil fuels appeal to boost up the renewable energy sector in bangladesh in order to bring down the gap between demand and supply hence decisive steps to reform the power sector with a mandate to oversee these sectors urgently need to overcome current energy crisis facing in the country in this paper efforts have been made to summarize the availability current status strategies perspectives promotion policies major achievements and future potential of energy options in bangladesh

current energy scenario and future prospect of renewable energy in bangladesh abstract energy is the building block of modern civilization and a prerequisite for sustainable development global energy consumption will increase by 36 with an annual growth of 1 6 from year 2011 to 2030 comprising 88 fossil fuel share bangladesh is a developing country in the southeast asia which is one of the lowest per capital energy consuming nation the power crisis has become a major constraint to continued economic growth and energy sector of the country is currently facing serious challenge due to depleting nature and mono fuel dependent energy policy finding alternative energy source has become imperative for the country this study examined the current energy mix present energy crisis and its way to overcome such scenario by utilizing alternative energy sources such as biomass solar wind and small scale hydropower energy in the context of bangladesh among the renewable energy sources biomass is found to be the most effective and utilizable potential electricity generation from biomass is 312 608 terawatt hour twh where only 44 52 twh is utilized on the other hand solar home system shs has shown positive impact on socio economic development in the rural areas by alleviating poverty and creating jobs to assure national energy security and aiming to provide constant and quality power supply to all citizens of bangladesh government of people s republic of bangladesh gob must strive to double its effort towards attaining greater renewable energy share by conversion utilization and dissemination

on the recoverability of risk and time preferences from consumption and asset demands abstract we establish sufficient conditions for the recoverability and uniqueness of utility functions performing generating consumption and asset demands in a two period setting under uncertainty

the recovery theorem we can only estimate the distribution of stock returns but from option prices we observe the distribution of state prices state prices are the product of risk aversion the pricing kernel and the natural probability distribution the recovery theorem enables us to separate these to determine the market s forecast of returns and risk aversion from state prices alone among other things this allows us to recover the pricing kernel market risk premium and probability of a catastrophe and to construct model free tests of the efficient market hypothesis

recovering probability distributions from option prices this article derives underlying asset risk neutral probability distributions of european options on the s p 500 index nonparametric methods are used to choose probabilities that minimize an objective function subject to requiring that the probabilities are consistent with observed option and underlying asset prices alternative optimization specifications produce approximately the same implied distributions a new and fast optimization technique for estimating probability distributions based on maximizing the smoothness of the resulting distribution is proposed since the crash the risk neutral probability of a three four standard deviation decline in the index about 36 percent 46 percent over a year is about 10 100 times more likely than under the assumption of lognormality recently the increasing popularity of derivatives and some highly publicized failures to control risk have led to increased efforts to find reasonable methods to measure the sensitivity of large institutional derivatives portfolios to extreme events merely because such events are rare is not sufficient to ignore them since on the few occasions when they do occur significant amounts of money can change hands potentially wiping out profits accumulated over long prior periods a key assumption behind methods of estimation is the joint probability distribution of constituent underlying asset returns this has long been a concern of financial economists since probability assumptions are critical to much of their research during the last quarter century heretofore probability distributions of stock market returns have typically been estimated from historical time series unfortunately common hypotheses may not capture the probability of extreme events and the events of interest are rare or may not be present in the historical record even though they are clearly possible

greenhouse gas emission and renewable energy sources for sustainable development in bangladesh abstract bangladesh is an energy starving country the country will be on one of the fast growing power markets with its population and growing energy demand per person its fast growing urbanization and its socio economic development at present the potential demand of power is 5569 mw and the supply is below 4000 mw the country is dependent on the imported petroleum that is big burden on the economy the per capita emission is only 0 2667 tonne per person still much below the world leading countries 19 8 tonne per person for usa however bangladesh is one of the most vulnerable to climate change effect in the world in this regard renewable energy resources appear to be the one of the most efficient and effective solution for clean and sustainable energy development in bangladesh biomass is the dominating source of energy in bangladesh biomass energy is used in a very traditional way biomass conversion to energy in the form of liquid gaseous and solid pellet or briquette could be a viable option to reduce the pressure on the conventional fossil fuel the geographical location of bangladesh has several advantages for extensive use of grid connected solar electricity and stand alone solar pv system this article presents a review of the potential and utilization of the renewable energy sources in bangladesh

on the recoverability of preferences and beliefs we examine the extent to which an investor s tastes and beliefs can be jointly recovered from knowledge of his her consumption choice more precisely we assume that the investor s preferences admit an expected utility representation but with subjective unknown probabilities and investigate what joint restrictions can be placed on utility functions and beliefs if the investor draws utility from intertemporal consumption we show that the set of utility functions and beliefs that are consistent with a given consumption choice can be characterized by a martingale condition in the markovian case this characterization can be restated in terms of a riccati differential equation that must be satisfied by the investor s relative risk aversion function to each solution of this differential equation is associated a unique utility function and a unique set of beliefs supporting the given consumption choice moreover we show that the differential equation has at most one solution in the class of utility functions displaying infinite absolute risk aversion at the origin thus preferences and associated beliefs can be uniquely recovered within this class article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the identification of preferences from equilibrium prices under uncertainty the competitive equilibrium correspondence which associates equilibrium prices of commodities and assets with allocations of endowments identifies the preferences and beliefs of individuals under uncertainty this is the case even if the asset market is incomplete

investor heterogeneity asset pricing and volatility dynamics abstract we provide an explicit characterization of the equilibrium when investors have heterogeneous risk preferences given market completeness investors can achieve full risk sharing thus a representative agent can be constructed though this agent s risk aversion changes over time as the relative wealths of the individual investors change we show that volatility depends on the covariance of aggregate risk aversion and stock returns we find that heterogeneity increases volatility produces volatility clustering arch effects and leverage like effects option prices exhibit implied volatility skews there is predictability and we assess the magnitude of investors hedging demands and trading volume further diversity is beneficial to all agents and entails welfare gains that can be substantial

on viable diffusion price processes of the market portfolio the assumption that the market portfolio follows a specified diffusion process implies in a simple equilibrium framework that the representative individual must have a certain utility function which is identified in the paper not every diffusion process is viable i e can be endogenized to be the market portfolio s price process in such an equilibrium model the paper provides necessary and sufficient conditions for viability which imply that viable diffusion processes constitute a rather restricted family it is common in financial economics especially in the option pricing literature to take a certain price dynamics of an underlying asset as a primitive assumption the results are then seemingly preference free but it is known that if one wishes to embed such a partial equilibrium model in a general equilibrium framework this can be obtained only with certain individuals preferences for example the black scholes 1973 model in which the underlying asset follows a geometric brownian motion is known to be consistent with utility functions which exhibit constant proportional risk aversion cpra see rubinstein 1976 breeden and litzenberger 1978 brennan 1979 stapleton and subrahmanyam 1984 and bick 1987 by this we mean that if the market portfolio follows a geometric brownian motion then necessarily the utility function of the representative individual exhibits cpra conversely one can construct a simple economy with a stock and a riskless bond where identical individuals have cpra type utility functions and where the endogenous stock price enumerated by the bond follows a prespecified geometric brownian motion however the utility function which corresponds in equilibrium to a general diffusion process has never been identified this was the initial motivation for this paper the problem loosely stated is as follows suppose we are told that in a simple equilibrium model as above the market portfolio follows a given diffusion process what does it imply regarding individuals preferences it is clear that the problem is not well formulated if a dividend process is also postulated e g as in merton 1973 1977 in this case consistency with two processes the price process and the dividend process is to be required this

another proposition on the recoverability of cardinal utility abstract a sufficient condition on the asset return structure other than the existence of a riskless asset is derived which permits recoverability of the von neumann morgenstern cardinal utility index from asset demands

recoverability of uzawa utility functionals under asset price lognormality abstract uzawa functionals are characterized by their utility and variable time preference components sufficient conditions for their recoverability given the investors consumption function and asset demands are presented in the context of a continuous time portfolio model with infinite horizon

skewness in financial returns abstract in this paper the symmetry of daily returns is addressed in eight international stock markets and three spot exchange rates tests of symmetry with the sample skewness seem of little value due to the non normality of the returns under alternative non normal distributions the symmetry of the returns cannot be rejected for most markets distribution free procedures do not detect strong asymmetries in most of the series either however some differences between returns below the mean and returns over the mean are observed in several markets

causality relationship between electricity consumption and gdp in bangladesh in this paper we examine the causal relationship between the per capita electricity consumption and the per capita gdp for bangladesh using cointegration and vector error correction model our results show that there is unidirectional causality from per capita gdp to per capita electricity consumption however the per capita electricity consumption does not cause per capita gdp in case of bangladesh the finding has significant implications from the point of view of energy conservation emission reduction and economic development

recovering preferences from preferences over nominal gambles abstract the main result in revealed preference theory is that under fairly weak assumptions strict concavity and monotonicity of the utility function an agent s preferences can be recovered from the entire demand function this paper addresses the possibility of recovering preferences from less extensive information given additional maintained restrictions on preferences specifically we explore whether an agent s utility function can be recovered from preferences over nominal gambles when money is risky in real terms or from demand for assets whose nominal returns contain common inflation or other risk the recovery is constructive to the extent that there is a good numerical technique for doing fourier transforms and inversions and other numerical computations can be done

biomass energy in bangladesh current status and prospects bangladesh has been experiencing several problems over the past few decades these include over population energy crisis and global warming etc adequate amount of power generation in a sustainable way is an important issue for rapidly increasing population and economic development renewable energy can play an effective role to meet energy demand since it is an agrarian country biomass is one of the potential renewable energy sources in bangladesh agricultural crop residues animal manure and municipal solid waste are the major sources of biomass energy in the country this paper presents the scope potential and technologies related to the use of biomass resources the study also discusses the biomass projects undertaken by the government and non government organizations plans and strategies to promote biomass technologies in bangladesh

international passenger transport and climate change a sector analysis in car demand and associated co2 emissions from 2000 to 2050 abstract the paper provides global regionalized projections of passenger car demand use and associated co 2 emissions from 11 world regions the study is based on empirical data that have been originally collated from international sources for the purpose of modeling region specific car stock demand derived demands serve as indicator of car related fuel consumption and associated co 2 emissions which are calculated on the basis of behavioral and technological scenarios the obtained co 2 emission paths are sectoral baseline scenarios that identify region specific potentials of growth in car induced co 2 emissions assuming that current trends continue to prevail the study adopts a multi model approach to car demand by applying two methodologies rooted in the economics of consumption utility maximization and single equation models the utility maximization method for modeling car demand is driven by the preferences of the representative consumers of each world region subject to exogenous price and income trajectories the latter is adopted from an optimal growth model this is a novel approach to projecting global regionalized sectoral car demands the study is complemented by the application of single equation income consumption models based on logistical gompertz functions and non linear regression techniques to compare model results

an alternative valuation model for contingent claims abstract this paper studies contingent claim valuation in a lucas type exchange economy the derived fundamental valuation equation differs from its cox ingersoll ross production economy counterpart in that it is expressed in terms of the direct utility function and an exogenous output process thus offering superior tractability we apply our approach to derive closed form solutions for bond bond option individual stock and stock option prices under a more general setting than allowable in the cox ingersoll ross framework the resulting interest rate and stock price dynamics are empirically plausible moreover our stock option pricing formula with stochastic volatility and interest rates can reconcile certain puzzling empirical regularities including the volatility smile

estimating the value of information we derive a general expression for the value of information to a price taking investor in a dynamic environment and provide a framework for its estimation we study the value of both private and public information and break it into its instrumental and psychic parts to illustrate we estimate and rank the values of leading macroeconomic indicators gdp employment etc using variations in option prices we find that consumer investors with conventional preference parameters would pay 3 to 5 bps of their wealth for a one time private peek into these indicators such signals provide substantial instrumental value but a minor psychic value received august 29 2016 editorial decision june 6 2018 by editor itay goldstein authors have furnished an internet appendix which is available on the oxford university press web site next to the link to the final published paper online

drivers barriers and strategies for implementation of renewable energy technologies in rural areas in bangladesh an innovation system analysis abstract bangladesh has good potential for harnessing renewable energy sources such as solar biomass wind and mini hydropower the country has been experiencing a gradual shift towards exploring renewable energy resources as a driving force for rural development a few public sector and non government organizations have started to develop renewable energy technology ret projects in rural areas the lessons learnt from different demonstrations of ret projects reveal that with careful forward planning renewable energy can provide far reaching economic environmental and social benefits to people living in remote rural areas in bangladesh this paper identifies some of the barriers that need to be overcome for the successful development of renewable energy technology sector and betterment of rural livelihoods it does so through a critical review of policy and institutional settings as well as present status and lessons learnt from pilot demonstration of a number of ret projects undertaken by different organizations the study highlights policy implications of the review with the aim of supporting decision makers in formulating renewable energy policies and future plans for bangladesh

an intertemporal general equilibrium model of asset prices this paper develops a continuous time general equilibrium model of a simple but complete economy and uses it to examine the behavior of asset prices in this model asset prices and their stochastic properties are determined endogenously one principal result is a partial differential equation which asset prices must satisfy the solution of this equation gives the equilibrium price of any asset in terms of the underlying real variables in the economy in this paper we develop a general equilibrium asset pricing model for use in applied research an important feature of the model is its integration of real and financial markets among other things the model endogenously determines the stochastic process followed by the equilibrium price of any financial asset and shows how this process depends on the underlying real variables the model is fully consistent with rational expectations and maximizing behavior on the part of all agents our framework is general enough to include many of the fundamental forces affecting asset markets yet it is tractable enough to be specialized easily to produce specific testable results furthermore the model can be extended in a number of straightforward ways consequently it is well suited to a wide variety of applications for example in a companion paper cox ingersoll and ross 7 we use the model to develop a theory of the term structure of interest rates many studies have been concerned with various aspects of asset pricing under uncertainty the most relevant to our work are the important papers on intertemporal asset pricing by merton 19 and lucas 16 working in a continuous time framework merton derives a relationship among the equilibrium expected rates of return on assets he shows that when investment opportunities are changing randomly over time this relationship will include effects which have no analogue in a static one period model lucas considers an economy with homogeneous individuals and a single consumption good which is produced by a number of processes the random output of these processes is exogenously determined and perishable assets are defined as claims to all or a part of the output of a process and the equilibrium determines the asset prices our theory draws on some elements of both of these papers like merton we formulate our model in continuous time and make full use of the analytical tractability that this affords the economic structure of our model is somewhat similar to that of lucas however we include both endogenous production and

the size of the state economic growth and the efficient utilization of national resources the motives of the state in projecting a more than minimal presence in the economy may be conceived of as benevolent or malevolent whatever the characterization of the motivation increases in the size of the government share of the economy adversely affect economic growth and the allocation of resources nations with relatively large government shares in 1960 on the whole grew more slowly than nations with relatively small state sectors interperiod increases in the size of government were associated with lower growth rates over the period the size of the government share coefficients in the regressions were of sufficiently large magnitude to conclude that the rise in the size of the government has had a substantial depressing effect on economic growth these results are consistent with those reported by landau 1983 and marlow 1986 landau did not adjust economic growth for the growth in factor endowment consequently his results overstate the adverse effect of government size

the growth tax in the united states by providing public goods including law and order national defense and income redistribution that expands the gains from exchange the scope and membership of the constitutional agreement government expenditures act as a positive externality on the growth rate beyond that level taxes act as a negative externality in this paper a simple model is formulated and the optimal growth maximizing tax rate found empirical estimation finds it to be in the range of 21 5 22 9 percent the effect of taxation beyond this level is a cumulative loss of about 30 trillion 1972 dollars in gnp over the period 1949 89

inefficient dynamic portfolio strategies or how to throw away a million dollars in the stock market a number of portfolio strategies followed by practitioners are dominated because they are incompletely diversified over time the payoff distribution pricing model is used to compute the cost of following undiversified strategies simple numerical examples illustrate the technique and computer generated examples provide realistic estimates of the cost of some typical policies using reasonable parameter values the cost can be substantial and should not be ignored by practitioners a section on generalizations shows how to extend the analysis to term structure models and other general models of returns this abstract was borrowed from another version of this item

the abrams curve of government size and unemployment evidence from panel data this study investigates the long run relationship between government size and unemployment rate the abrams curve using ten european countries over the period 1961 1999 to this end panel cointegration analysis and estimation techniques appropriate for heterogeneous panels are made use of the results support the idea that there is an abrams curve and the relation between government size and the unemployment rate is positive

a portfolio performance index fund managers may sensibly be averse to earning a time averaged portfolio return that is less than the average return of some designated benchmark when a portfolio is expected to earn a higher average return than the benchmark return the probability that it will not approaches zero asymptotically at a computable exponential decay rate the probability decay rate is thus proposed here as a new portfolio performance index in the widely analyzed special case in which returns are normally distributed the new performance index maximizing portfolio is the same as the popular sharpe ratio maximizing portfolio the results of the two approaches generally differ however because of nonnormal levels of skewness and or kurtosis in the portfolio attributable to large asymmetrical economic shocks or investments in options and other derivative securities an illustrative example will show that the new index is easy to implement and consistent with empirical evidence on portfolio choice favors investments with

expected utility and revelation of subjective probabilities abstract the subjective probabilities of an expected utility maximizer cannot be inferred from his choices among lotteries for lotteries with finitely many outcomes the transformations of probabilities consistent with the given preferences of an expected utility maximizer are characterized

incomplete market demand tests for kreps porteus selden preferences abstract what does utility maximization subject to a budget constraint imply for intertemporal choice under uncertainty assuming consumers face a two period consumption portfolio problem where asset markets are incomplete we address this question following both the standard local infinitesimal and finite data approaches to focus on the separate roles of time and risk preferences individuals maximize kps kreps porteus selden preferences the consumption portfolio problem is decomposed into a one period portfolio problem and a two period certainty consumption saving problem we derive demand restrictions which are necessary and sufficient for portfolio choices and certainty intertemporal consumption to have been generated by maximization respectively of a one period expected utility representation and a certainty representation of time preferences conditions are provided for recovering the building block time and risk preference utilities for the finite data case we derive a set of linear inequalities that are necessary and sufficient for observations to be consistent with the maximization of kps utility

nonlinear dynamical model of regime switching between conventions and business cycles abstract we introduce and study a non equilibrium continuous time dynamical model of the price of a single asset traded by a population of heterogeneous interacting agents in the presence of uncertainty and regulatory constraints the model takes into account i the price formation delay between decision and investment by the second order nature of the dynamical equations ii the linear and nonlinear mean reversal or their contrarian in the form of speculative price trading iii market friction iv uncertainty in the fundamental value that controls the amplitude of mispricing v nonlinear speculative momentum effects and vi market regulations that may limit large mispricing drifts we find markets with coexisting equilibrium conventions and business cycles that depend on a the relative strength of value investing versus momentum investing b the level of uncertainty on the fundamental value and c the degree of market regulation the stochastic dynamics is characterized by nonlinear geometric random walk like processes with spontaneous regime shifts between different conventions or business cycles this model provides a natural dynamical framework to model regime shifts between different market phases that may result from the interplay between the effects i vi

on dynamic investment strategies abstract this paper presents a new approach for analyzing dynamic investment strategies previous studies have obtained explicit results by restricting utility functions to a few specific forms not surprisingly the resultant dynamic strategies have exhibited a very limited range of behavior in contrast we examine what might be called the inverse problem given any specific dynamic strategy can we characterize the results of following it through time more precisely can we determine whether it is self financing yields path independent returns and is consistent with optimal behavior for some expected utility maximizing investor we provide necessary and sufficient conditions for a dynamic strategy to satisfy each of these properties

securities markets diffusion state processes and arbitrage free shadow prices this paper develops the parametric restrictions imposed on diffusion state processes by the requirement of arbitrage free asset pricing using the equivalent martingale measure as a starting point the diffusion property is exploited to specify the shadow pricing func tion which takes conditional state variable probabilities under the reference measure into arbitrage free contingent claim prices the main results of the paper provide differential equations associated with the shadow price function that are used to identify restrictions on the parameters of assumed diffusion processes the paper concludes with an application to the cir model where the state variable the instantaneous interest rate is assumed to follow a square root process calculations are also provided for the parametric restrictions imposed on the brownian bridge and ou state variable processes

expected consumer s surplus and the welfare effects of price stabilization suppose a consumer faces a price which is uncertain ex ante a question which often arises is whether the consumer would benefit from a stabilization policy under which the price would then be fixed and known with certainty many authors have addressed this question by calculating the expected compensating variation of the price change others have used expected marshallian consumer s surplus often with the explanation that it is a good approximation to expected compensating variation 2 an important unresolved issue however is whether expected compensating variation does in fact provide a valid ranking of stochastic prices against stabilized prices i e a ranking in agreement with that given by expected utility in section 2 we demonstrate that expected compensating variation is not in general a valid utility indicator in essence while utility comparisons under uncertainty require the use of the cardinal properties of von neumannmorgenstern utility functions the expected surplus measures depend only on ordinal preference rankings expected compensating variation then is completely insensitive to and cannot reflect the precise factor of interest in suchstudies the consumer s attitudes toward risk we then derive a set of restrictions on the utility function which are necessary in order for expected compensating variation to be a valid measure we see that price stabilization policies can only be evaluated with compensating variation if consumer preferences are assumed to satisfy quite stringent requirements this is in constrast to the familiar certainty case in which compensating variation always provides correct rankings

optimal consumption and portfolio policies when asset prices follow a diffusion process abstract we consider a consumption portfolio problem in continuous time under uncertainty a martingale technique is employed to characterize optimal consumption portfolio policies when there exist nonnegativity constraints on consumption and on final wealth we also provide a way to compute and verify optimal policies our verification theorem for optimal policies involves a linear partial differential equation unlike the nonlinear partial differential equation of dynamic programming the relationship between our approach and dynamic programming is discussed we demonstrate our technique by explicitly computing optimal policies in a series of examples in particular we solve the optimal consumption portfolio problem for hyperbolic absolute risk aversion utility functions when the asset prices follow a geometric brownian motion the optimal policies in this case are no longer linear when nonnegativity constraints on consumption and on final wealth are included by these examples one can see that our approach is much easier than the dynamic programming approach

on equilibrium asset price processes in this article we derive necessary and sufficient conditions that must be satisfied by equilibrium asset price processes in apure exchange economy we examine a world in which asset prices follow a diffusion process asset markets are dynamically complete all investors maximize their state independent expected utility of consumption at some future date and investors have nonrandom exogenous income we show that it is necessary and suffcient that the coefficients of an equilibrium diffusion price process satisfy a partial differential equation and a boundary condition we also examine how the dynamics of asset prices are related to the shape of the representative investor s utility function through the boundary condition for example in a constant volatility economy the expected instantaneous return of the market portfolio is mean reverting if and only if the relative risk aversion of the representative investor is decreasing in terminal wealth

development of renewable energy sector in bangladesh current status and future potentials abstract bangladesh is a hugely populated country in south asia the country produces its electricity mainly from natural gas followed by liquid fuels although the installed electricity generation capacity of the country has been increased to 12 261 mw there is scarcity of electricity in the hot summer season which is a barrier to industrial development as well as socio economic development combustion of fossil fuels releases greenhouse gases ghgs into the atmosphere which causes global warming bangladesh can be badly affected by greenhouse effect and global warming these problems can be mitigated by incorporating renewable energy sources e g solar wind hydro biomass etc to the country s electricity generation renewable energy resources are considered as clean and can serve the electricity demand in the remote areas where grid connection is not possible the potential of solar energy and biomass is enormous in bangladesh and people have already started to harness energy from these sources the government and the policy makers should come forward to encourage the people of rural areas as well as urban areas to use renewable based electricity the government of bangladesh has set up a plan to generate 5 of the country s total electricity from renewable sources within 2015 and 10 within 2020 however within 2015 the country has been able to generate only 3 5 of the total electricity from renewable sources this paper presents a thorough review of the current status and future potentials of renewable energy sector in bangladesh in this paper the updated information is provided for the overall renewable energy sector of the country

on the relative unimportance of a balanced budget this paper explores the reasoning underlying milton friedman s preference for a small unbalanced budget over a large balanced one because the marginal return from government spending is less than the marginal cost measured in terms of the amount of income private individuals remain free to spend government expenditures have more of an adverse impact on the economy in his view than does the method of financing that spending using a panel data set comprising the 50 states plus the district of columbia we report evidence from the years 1967 through 1992 that growth rates in income per capita tend to be higher in states with smaller public sectors moreover we find that while both deficits and taxes reduce the rate of income growth in a state the negative impact of government spending is considerably larger at the margin

the term structure of interest rates in a dsge model with recursive preferences abstract a dynamic stochastic general equilibrium dsge model in which households have epstein and zin recursive preferences is solved with perturbation the parameters governing preferences and technology are estimated by maximum likelihood using macroeconomic data and the term structure of interest rates the estimates imply a large risk aversion an elasticity of intertemporal substitution higher than one and substantial adjustment costs furthermore the paper identifies the tensions within the model by estimating it on subsets of these data the analysis concludes by pointing out potential extensions that may improve the model s fit

the integrability problem of asset prices abstract in a dynamic continuous time stochastic environment given a well behaved asset price a non decreasing and concave utility function that reproduces the asset price in the rational expectations equilibrium can be identified journal of economic literature classification numbers d11 g12 c60 d50 d80

when are path dependent payoffs suboptimal abstract generalizing a result by cox and leland 2000 vanduffel et al 2009 this note shows that risk averse investors with fixed planning horizon prefer path independent payoffs in any financial market if the pricing kernel is a function of the underlying s price at the end of the planning horizon generally for every payoff which is not a function of the pricing kernel there is a more attractive alternative that depends solely on the pricing kernel at the end of the planning horizon

women s suffrage and the growth of the welfare state in this paper we test the hypothesis that extensions of the voting franchise to include lower income people lead to growth in government especially growth in redistribution expenditures the empirical analysis takes advantage of the natural experiment provided by switzerland s extension of the franchise to women in 1971 women s suffrage represents an institutional change with potentially significant implications for the positioning of the decisive voter for various reasons the decisive voter is more likely to favor increases in governmental social welfare spending following the enfranchisement of women evidence indicates that this extension of voting rights increased swiss social welfare spending by 28 and increased the overall size of the swiss government

an intertemporal general equilibrium asset pricing model the case of diffusion information this paper provides sufficient conditions for the equilibrium price system and a vector of exogenously specified state variable processes to form a diffusion process in a pure exchange economy the conditions involve smoothness of agents utility functions and certain nice properties of the aggregate endowment process and the dividend processes of traded assets in place of the dynamic programming a martingale representation technique is utilized to characterize equilibrium portfolio policies this technique is useful even when there does not exist a finite dimensional markov structure in the economy and thus the markovian stochastic dynamic programming is not applicable a gents are shown to hold certain hedging mutual funds and the riskless asset in contrast to earlier results the market portfolio does not have a special role in hedging since the markets are dynamically complete when there exists a finite dimensional markov system in the economy the dimension of the hedging demand identified through the markovian dynamic programming may be much larger than that identified by the martingale method copyright 1987 by the econometric society

capital growth with security abstract this paper discusses the allocation of capital over time with several risky assets the capital growth log utility approach is used with conditions requiring that specific goals are achieved with high probability the stochastic optimization model uses a disjunctive form for the probabilistic constraints which identifies an outer problem of choosing an optimal set of scenarios and an inner conditional problem of finding the optimal investment decisions for a given scenarios set the multiperiod inner problem is composed of a sequence of conditional one period problems the theory is illustrated for the dynamic allocation of wealth in stocks bonds and cash equivalents

government size and unemployment evidence from industrial countries using data from 19 industrial countries for the period 1985 to 2002 this paper analyzes how the size of the government sector affects unemployment controlling for the impact of the business cycle as well as for the impact of all major labor market institutions and unobserved country effects we find that a large government sector is likely to increase unemployment it appears to have a particularly detrimental effect on women and the low skilled and to substantially increase long term unemployment it seems that dominant stateowned enterprises a large share of public investment in total investment as well as high top marginal income tax rates and low income threshold levels at which they apply are particularly detrimental

hedge fund performance 1990 2000 do the money machines really add value we investigate the claim that hedge funds offer investors a superior risk return tradeoff we do so using a continuous time version of dybvig s 1988a 1988b payoff distribution pricing model the evaluation model which does not require any assumptions with regard to the return distribution of the funds to be evaluated is applied to the monthly returns of 77 hedge funds and 13 hedge fund indices from may 1990 april 2000 the results show that as a stand alone investment hedge funds do not offer a superior risk return profile we find 12 indices and 72 individual funds to be inefficient with the average efficiency loss amounting to 2 76 per annum for indices and 6 42 for individual funds part of the inefficiency cost of individual funds can be diversified away funds of funds however are not the preferred vehicle for this as their performance appears to suffer badly from their double fee structure looking at hedge funds in a portfolio context results in a marked improvement in the evaluation outcomes seven of the 12 hedge fund indices and 58 of the 72 individual funds classified as inefficient on a stand alone basis are capable of producing an efficient payoff profile when mixed with the s p 500 the best results are obtained when 10 20 of the portfolio value is invested in hedge funds

the effect of government size on the unemployment rate recent empirical studies have revealed that the size of government is inversely related to economic growth and technical efficiency evidence is presented linking the size of government to reported unemployment rates for the industrial countries during recent years this finding helps to explain the empirical link between government size and poor macroeconomic performance

next power generation mix for bangladesh outlook and policy priorities abstract bangladesh s strategy for economic development relies heavily on its energy and power policy searching for an efficient implementation of planned power generation mix of gas oil coal and hydro at present the contribution of gas is around 83 of total power generation which is much higher than other traditional fuel sources to reduce this single source dependency on gas bangladesh needs to initiate alternative option to sustain its mid term power generation mix in addition to achieve its long term energy security government of bangladesh has already initiated a new master plan for the development of power generation under fuel diversification scenario in this view local coal production and imported coal would assist the power planners to reduce the sole dependency on gas driven power plants in addition cross border hydropower import from bhutan myanmar and nepal would also be a vital policy imperative to maintain the country s long term energy security nonetheless adding extra power to production side is certainly essential demand side management through efficient energy use and energy conservation could also be of assistance to the release the existing crisis to a greater extent

growing pertinence of bioenergy in formal informal global energy schemes necessity for optimising awareness strategies and increased investments in renewable energy technologies abstract biomass most of which is presently in the form of lignocellulose is an important source of energy in many developing countries particularly those in sub sahara africa the intensity of sourcing and use of these renewable natural resources in these countries are increasing owing to multifarious reasons series of reported studies and experiences have shown that this trend is not likely to reverse in the nearest future in these countries and that there is also very likely to be an upward global surge in this regard perhaps because of the expected positive responses to the increasing campaign for gradual energy switch to biofuels partly in order to contribute to the series of efforts at controlling the presently experienced global climate change as a result of fossil fuel combustion on one hand and finiteness of this non renewable resource fossil fuel on the other in line with these concerns some developed countries are already increasing biofuels in their energy supplies main source of which are expected to likely be from less developed tropical countries in future with series of projections concerning this therefore there is the need for sustainable means of producing biomass for this purpose in these developing countries coupled with strategies that will capture future possibilities of supplying this resource to other parts of the world when the demand arise however literature showed that irrespective of the increasing importance of biofuels the present awareness levels concerning this and investment in renewable energy technologies are still low noting that most of the efforts in these regard appear to be more in the developed countries increased awareness and investments in bioenergy is therefore also imperative in developing countries bearing in mind this region s importance in its future sourcing and supply the concept behind this article is to highlight the growing global importance and usage of biomass energy and their influence on both formal and informal global energy schemes hoping this will be valuable to the various stakeholders that influence growth and development in this sector particularly in the developing countries

a generalization of the brennan rubinstein approach for the pricing of derivatives this paper derives preference free option pricing equations in a discrete time economy where asset returns have continuous distributions there is a representative agent who has risk preferences with an exponential representation aggregate wealth and the underlying asset price have transformed normal distributions which may or may not belong to the same family of distributions those pricing results are particularly valuable a to show new sufficient conditions for existing risk neutral option pricing equations e g the blackscholes model and b to obtain new analytical solutions for the price of european style contingent claims when the underlying asset has a transformed normal distribution e g a negatively skew lognormal distribution a fundamental result in the valuation theory under uncertainty is that equilibrium asset prices depend on investors marginal utility functions in this framework assuming a discrete time trading model and asset returns with continuous distributions rubinstein 1976 and brennan 1979 are able to derive risk neutral valuation relations that is preference free option pricing equations with an implicit mean return equal to the interest rate these pricing results seem surprising but they simply explore the relationship between derivatives and their underlying asset the underlying asset has an absolute price and derivatives have relative prices in terms of the underlying asset price implying that in equilibrium all these prices depend on the risk premium of the underlying asset hence the price of the underlying asset can be used to eliminate the risk premium from the option pricing equations the risk neutral valuation relations might have interesting applications not only in financial investments but also in real assets and executive compensation plans these pricing results were obtained under restrictive conditions on preferences and distributions rubinstein 1976 obtains the black scholes model with constant proportional risk aversion cpra preferences he also assumes that aggregate consumption and the underlying asset are bivariate lognormally

the local recoverability of risk aversion and intertemporal substitution abstract call an economy revealing if underlying preferences are recoverable from asset prices specifically from the prices of aggregate equity or a one period discount bond in a lucas econometrica 46 1978 1429 4444 model with kreps porteus econometrica 46 1978 185 200 nonexpected utility and markov output growth rate process local recoverability is shown to be a generic property in this sense it is generically true that asset pricing models based on the more general kreps porteus utility have more explanatory power than the usual expected utility and both the risk aversion and intertemporal aspects of the kreps porteus utility can be recovered from a single dynamic equilibrium journal of economic literature classification numbers d11 g12 c60 d50 d80

economic freedom and unemployment around the world author affiliation horst feldmann department of economics and international development university of bath bath ba2 7ay united kingdom h feldmann bath ac uk1 datathis paper applies the economic freedom of the world efw index that has been developed by a group of north american economists under the auspices of the canadian fraser institute with the aid of a worldwide network of further economists and institutes gwartney and lawson 2005 the index has often been assessed to be a good measure of economic freedom and thus has been widely used in the empirical literature it subdivides economic freedom into five areas i size of government ii legal structure and security of property rights iii access to sound money iv freedom to trade internationally and v regulation of credit labor and business for variable definitions and sources see appendix a the two main authors of the index have explained their concept and measurement of economic freedom in each report e g gwartney and lawson 2005 and elsewhere e g gwartney and lawson 2003 economic freedom is complex and multidimensional a major advantage of the efw index is that it reflects all aspects of economic freedom and adequately groups them into five different areas to provide information on the overall linkage between economic freedom and unemployment we use the efw summary index additionally we use the five area indices this allows us to analyze which economic freedoms have the strongest effects as the correlation matrix indicates there is substantial correlation among several of the area variables appendix b therefore we estimate specifications that include these measures one at a time however the correlation matrix also indicates that the area variables are not highly correlated with each other therefore we also present specifications in which we include them jointly estimating the effects of the area variables both separately and jointly allows us to check the robustness of our results for these variables the efw index not only has the advantage that it covers all aspects of economic freedom and adequately groups them into five different areas it also has the advantage that it is based largely on objective data these data and the ratings derived on the basis thereof may be verified by anybody aspects of economic freedom that cannot be measured objectively mainly in the areas legal structure and property rights and regulations are measured using subjective data from the global competitiveness reports of the world economic forum and the international country risk guides of the prs group the data in the global competitiveness reports are based on annual surveys among approximately 4000 to 5000 senior business executives the data in the international country risk guides are computed from an in house panel of experts of the prs group in both cases the data are compiled professionally for example the selection of respondents for the world economic forum s surveys is largely representative of the structure of each economy and the respondents have excellent knowledge of their country s economy the international country risk guides are based on the assessments of experienced experts 1for each variable included in the efw index a total of 38 the relevant data are translated into ratings with the aid of a formula that is published in the reports of the fraser institute the rating scale ranges from 0 to 10 with 0 representing the lowest and 10 the highest degree of economic freedom the area ratings for each of the five areas are calculated as the arithmetic means of the ratings for their respective components in turn the summary rating is the average of the five area ratings applying the most recent methodology which was further developed over the years the efw index was calculated for every fifth year from 1970 on plus for the years 2001 2002 and 2003

the analysis on photovoltaic electricity generation status potential and policies of the leading countries in solar energy abstract energy which is the main agenda of our world is crucially important for the people many countries frequently held meetings and discussions with energy agenda these countries are working to balance the energy demand and supply for finding the solution are researched researches should be attempted to present a more efficient way to use energy as well as renewable energy resources effectively photovoltaic energy power systems take place as the most dominant source among renewable energy technologies the most important reason is that it is unlimited and clean energy of the solar power systems many studies show that photovoltaic power systems will have an important share in the electricity of the future in this study to generate electricity from solar energy using photovoltaic systems have a leading position in some european countries united states of america china and japan s current status and future policies will be analyzed in various comments were made

recovery of preferences from observed wealth in a single realization von neumann morgenstern preferences over terminal consumption can be inferred from wealth on a single sample path when markets are complete and returns follow a known law in a neoclassical investment problem in either a discrete time i i d binomial model or a continuous time diffusion model with a gaussian state variable numerical results suggest that useful information about preferences can be obtained from even a single noisy sample of monthly observations of a portfolio over 5 years article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

endogenous completeness of diffusion driven equilibrium markets we study the existence of dynamic equilibria with endogenously complete markets in continuous time heterogenous agents economies driven by diffusion processes our main results show that under appropriate conditions on the transition density of the state variables market completeness can be deduced from the primitives of the economy in particular we prove that a sufficient condition for market completeness is that the volatility of dividends be invertible and provide higher order conditions that apply when this condition fails as is the case in the presence of fixed income securities in contrast to previous research our formulation does not require that securities pay terminal dividends and thus allows for both finite and infinite horizon economies

asset demand based tests of expected utility maximization we provide conditions under which contingent claim and asset demands are consistent with state independent expected utility maximization the paper focuses on the case of a single commodity and demands are allowed to be functions of probabilities and not just prices and income we extend prior analyses by deriving three distinct tests for demands to be rationalized by expected utility i a contingent claim analogue to the certainty strong axiom of revealed preference ii a characterization of the functional form for demand and iii necessary and sufficient conditions based on the slutsky matrix jel d01 d11 d81 the neoclassical certainty model of consumer behavior postulates that a consum er s demand can be described as having been derived from utility maximization sub ject to a budget constraint one is then naturally led to ask what this model implies about observed demand behavior this question has been addressed using two quite distinct approaches the first originating in the work of slutsky 1915 and antonelli 1886 derives necessary and sufficient conditions for utility maximization assum ing knowledge of the consumer s demand functions the second approach known as revealed preference following the classic work of samuelson 1938 provides necessary and sufficient restrictions on a finite set of demand price pairs such that the demand behavior of a consumer is consistent with utility maximization in this paper we extend both approaches to a classic portfolio choice problem where consumers possess state independent expected utility preferences and there is a single commodity in each state we focus only on the complete market case where the financial asset setting is equivalent to the contingent claim setting and hence it is only necessary to discuss demand tests for the latter we depart from the standard contingent claim theory by assuming that state of nature probabilities are not fixed and we model demand as a function of probabilities as well as prices and income for the revealed preference approach with the restriction of a single commodity in each state we derive a much simpler test for expected utility maximization than those that currently exist in the literature for example the formulation of green and

option prices under bayesian learning implied volatility dynamics and predictive densities abstract this paper shows that many of the empirical biases of the black and scholes option pricing model can be explained by bayesian learning effects in the context of an equilibrium model where dividend news evolve on a binomial lattice with unknown but recursively updated probabilities we derive closed form pricing formulas for european options learning is found to generate asymmetric skews in the implied volatility surface and systematic patterns in the term structure of option prices data on s p 500 index option prices is used to back out the parameters of the underlying learning process and to predict the evolution in the cross section of option prices the proposed model leads to lower out of sample forecast errors and smaller hedging errors than a variety of alternative option pricing models including black scholes and a garch model

the three p s of total risk management current risk management practices are based on probabilities of extreme dollar losses e g measures like value at risk but these measures capture only part of the story any complete risk management system must address two other important factors prices and preferences together with probabilities these compose the three p s of total risk management this article describes how the three p s interact to determine sensible risk profiles for corporations and for individuals guidelines for how much risk to bear and how much to hedge by synthesizing existing research in economics psychology and decision sciences and through an ambitious research agenda to extend this synthesis into other disciplines a complete and systematic approach to rational decision making in an uncertain world is within reach

recovering cardinal utility individual choice under uncertainty depends on an agent s attitudes towards risk typically represented by his von neumann morgenstern cardinal utility function u this function is of course an unobservable characteristic what is at least in principal observable is the agent s demand for alternative assets problems of prediction and welfare often require conclusions to be drawn concerning the unobservable characteristics based on observable behaviour to predict the response to a change in the stochastic production plan of a firm or to determine the compensation necessary so as to avoid a loss in welfare due to a change in the capital tax structure knowledge of an agent s attitude towards risk is required it is the purpose of the present paper to demonstrate that as long as the joint distribution of returns of the available assets is known the cardinal utility function can be recovered without ambiguity from asset demands provided that the set of available assets contains a riskless asset the distinguishing characteristic of the recoverability problem as posed here is the possible incompleteness of markets in a framework of complete markets if nominal income and prices vary independently the range of the demand correspondence can be assumed to cover an open subset of the consumption set the utility function can then be immediately recovered up to a monotone transformation over this range given mild regularity conditions on demand behaviour given incomplete markets however this argument fails since the choice set is a lower dimensional subspace of state space we learn only about the agent s preferences within this subspace we show that the existence of a riskless asset and some risky asset implies recoverability of von neumannmorgenstern preferences even if markets are incomplete in the presence of a riskless asset any positive riskless level a of wealth is demanded for some asset prices using arguments from pratt 1964 the ratio u a u a can be recovered without ambiguity for all positive resp non negative values of a and hence an integration argument can be used to recover the cardinal utility function u up to a positive affine transformation beyond the argument based on knowledge of the asset demand correspondence we explore an alternative approach to recoverability we demonstrate that knowledge of the portfolio indifference surfaces permits recovery of the cardinal utility function provided there is a riskless asset the intuition here is that the agent s risk aversion is directly related to the curvature of the indifference curve around the riskless point and the variance of the risky asset s that this approach is in general equivalent to the demand correspondence approach is well known we give a brief proof for twice continuously differentiable and strictly monotone utility functions we point out two results concerning the informational requirements of the argument for recoverability specifically the argument does not require complete knowledge of the distribution of returns independently of the asset demands instead it suffices to know the mean and variance of the returns to just one asset other than the riskless and the return of the riskless asset furthermore if the demand for assets is known only on a subset of the

the recovery of risk preferences from actual choices since its introduction the expected utility hypothesis has been widely used in the construction of economic models more recently attention has focused on the conditions under which it is possible in principle to recover individual investors risk preferences from their demand for assets dybvig and polemarchakis 2 this paper represents a first attempt to recover preferences operationally from data on the actual demand for assets numerous difficulties are encountered in attempting to measure preferences toward risk in a real world setting preferences are revealed through the choices of an individual but in an uncertain world these choices also depend on his expectations of future events hence an immediate problem arises in separating the influences of each on such decisions problems can also arise in measuring other variables such as wealth which influence choices because of these difficulties efforts to classify and measure an individual s risk preferences have been confined to direct assessments in hypothetical environments e g kahneman and tversky 4 and keeney and raiffa 5 pp 203 212 2 in these studies the authors assumed that stated preferences are accurate indicators of actual behavior the question remains however whether individuals actually behave in the way their assessments predict the purpose of this note is to make some progress in answering this question in it an experiment is described which infers an individual s risk preferences from his actual choices in a real world environment specifically the risk aversion of a dealer in u s government securities is assessed directly and then estimated statistically from his actual demand for bills in the weekly treasury auctions the distribution of returns used in the analysis are calculated from the forecasts made by the dealer himself in addition to introducing new procedures for measuring preferences this study provides insights into the reliability of direct assessments in predicting the actual behavior

public expenditures and the unemployment rate in the american states panel evidence we reexamine the unemployment rate ur government expenditure nexus in a panel of 50 state and local governments slgs over the period 1977 2006 to provide new pre recession empirical evidence that helps put the expectations on the effects of the federal relief to slgs in a broader context we found that 1 per capita real public spending total and capital assistance and subsidies wages and salaries and social insurance categories was part of a cointegrating relationship with ur and real per capita state personal income 2 with the exception of social insurance other spending variables when statistically significant actually had a depressing effect on ur the magnitude of this effect however was generally small ur was most sensitive to increases in wages and salaries 3 long term causality analysis based on panel error correction coefficients provided consistent evidence of a causal effect from spending to ur but less consistent evidence of such effect in the opposite direction soci