the adoption of reduced tillage the role of human capital and other variables this paper presents a model of adoption behavior and explains differences econometrically in farmers decisions to adopt reduced tillage practices and in the efficiency of farmers adoption decisions the empirical results obtained from microdata show that the probability of adopting reduced tillage in corn enterprises differs widely across farms and depends on soil characteristics cropping systems and size of farming operation the results also show that farmers schooling enhances the efficiency of the adoption decision

an economic theory of self control the concept of self control is incorporated in a theory of individual intertemporal choice by modeling the individual as an organization the individual at a point in time is assumed to be both a farsighted planner and a myopic doer the resulting conflict is seen to be fundamentally similar to the agency conflict between the owners and managers of a firm both individuals and firms use the same techniques to mitigate the problems which the conflicts create this paper stresses the implications of this agency model and discusses as applications the effect of pensions on saving saving and the timing of income flows and individual discount rates

when choosing makes a good thing better temporal variations in the valuation of hedonic consumption abstract this research investigates how the valuation of delayed consumption of hedonic products such as concerts and chocolate varies with the passage of time between choice and consumption the authors find that when consumers make their own choices they exhibit increases in evaluations of delayed consumption but only if the interval between choice and consumption is relatively short the effect attenuates over longer periods resulting in an inverted u shaped relationship between evaluations and time in contrast when somebody else chooses the same option for the consumer evaluations decrease with the passage of time these effects depend on the extent of intrinsic motivation toward the object of consumption and occur only for consummatory consumption that is of inherent interest moreover anticipatory increases in evaluations before consumption have ironic negative effects on postconsumption evaluations the authors discuss implications and directions for further research

cultural differences in consumer impatience abstract in this article the authors examine cross cultural variations in how people discount the future specifically they predict that people from western cultures are relatively less patient and therefore discount the future to a greater degree than do people from eastern cultures and thus westerners value immediate consumption relatively more furthermore on the basis of regulatory focus theory the authors predict that when easterners are faced with the threat of a delay in receiving a product i e a prevention loss they are more impatient whereas when westerners are faced with the threat of not being able to enjoy a product early i e a promotion loss their impatience increases this enhanced impatience manifests in preference for expedited consumption of a product purchased online in two studies in both studies the authors used a priming methodology on bicultural singaporean participants the results support the predictions in the second study they also found evidence in support

focusing and framing of risky alternatives abstract this paper develops a theory of focusing and framing in an intertemporal context with risky choices we provide a selection criterion between existing theories of focusing by allowing a decision maker to choose her frame such that her attention is either drawn to salient events associated with an option or to the expected utilities an option yields in different time periods our key assumption is that a decision maker can choose her frame in a self serving manner we predict that the selected frame induces overoptimistic actions in the sense that subjects underrate downside risk but overrate upside risk and accordingly reveal overoptimistic choices hence our theory can explain phenomena such as excessive harmful consumption smoking unhealthy diet and risky investments entrepreneurship lotteries gambling in one coherent framework notably overoptimistic actions are not universal but have plausible limits we characterize under which situations overoptimistic actions are most likely to occur and under which circumstances choices should be rational or even pessimistic

diffusion and spillover of new technology a heterogeneous agent model for cassava in west africa understanding what determines the geographic spread of innovations can help guide the funding and implementation of research and extension programs our approach uses household survey data as model parameters to simulate behavior across the entire surveyed population and avoid the aggregation bias associated with representative farm models such a heterogeneous agent approach allows us to infer the distribution of a technology s impacts across one set of households and predict the potential for spreading to another set that shares similar characteristics with respect to natural resource endowments and farming systems we apply the technique to new cassava varieties in west africa finding a strongly poverty alleviating impact with substantial spillover potential from nigeria to neighboring countries

taxes on tax exempt bonds implicit tax rates priced in the cross section of municipal bonds are approximately two to three times as high as statutory income tax rates with implicit tax rates close to 100 using retail trades and above 70 for interdealer trades these implied tax rates can be identified because a portion of secondary market municipal bond trades involves income taxes after valuing the tax payments market discount bonds which carry income tax liabilities trade at yields around 25 basis points higher than com parable municipal bonds not subject to any taxes the high sensitivities of municipal bond prices to tax rates can be traced to individual retail traders dominating dealers and other institutions the issue of how taxes affect asset prices is an important issue in finance accounting and economics in theoretical models examining the effect of taxes

anticipation of future variety reduces satiation from current experiences abstractsatiation frequently occurs from repeated consumption of the same items over time however results from five experiments show that when people anticipate consuming something different in the future they satiate at a slower rate in the present the authors find the effect in both food and nonfood consumption settings using different approaches to measure satiation this effect is cognitive specifically anticipating variety in future consumption generates positive thoughts about that future experience the authors find two boundary conditions the future consumption outcome must be 1 in a related product category and 2 at least as attractive as the present consumption outcome the authors rule out potential alternative explanations such as mere exposure to variety the possibility that the future experience is more attractive rather than just different than the current one and perceptions of scarcity associated with the item consumed in the present

price reaction and disagreement over public signal abstract we develop a theory of endogenous disagreement over the interpretation of public news based on the optimal expectation model proposed by brunnermeier and parker 2005 in our model each agent can form an optimal interpretation and agree to disagree with others we find that endogenous disagreement and trade may arise following public news events the model predicts that the market price overreacts to uninformative news and underreacts to informative news thus providing a unified account for the drift in price following significant news events and the excessive price volatility in response to noisy information

discounting behaviour and the magnitude effect evidence from a field experiment in denmark we evaluate the claim that individuals exhibit a magnitude effect in their discounting behaviour where higher discount rates are inferred from choices made with lower principals all else being equal if the magnitude effect is quantitatively significant it is not appropriate to use one discount rate that is independent of the scale of the project for cost benefit analysis and capital budgeting using data from a field experiment in denmark we find statistically significant evidence of a magnitude effect that is much smaller than is claimed this evidence surfaces only if one controls for unobserved individual heterogeneity in the population

risks and returns from soil conservation evidence from low income farms in the philippines abstract this paper examines risks and returns associated with soil conservation on hillside farms in the philippines stochastic efficiency analysis is combined with a heteroskedastic regression model to assess the impacts of contour hedgerows on low income corn farms regression analysis indicates that over time contour hedgerows can improve yields up to 15 compared with conventional practices the analysis also provides weak support for a hypothesis that hedgerows are variance reducing however results show that the reduction in yield variability afforded by hedgerows is modest and that yield variability may increase by as much as 5 as hedgerow intensity rises tests for stochastic dominance show that compared with the conventional tillage system hedgerows do not constitute an unambiguously dominant production strategy stochastic efficiency with respect to a function is used to identify a range for the coefficient of relative risk aversion within which hedgerows dominate conventional tillage results suggest this range would be rather high hedgerows dominate the conventional cropping strategy only for decision makers with relative risk aversion coefficients in the range 3 5 5 implications for soil conservation adoption in low income settings are discussed

overconfidence and social signalling evidence from both psychology and economics indicates that individuals give statements that appear to overestimate their ability compared to that of others we test three theories that predict such relative overconfidence the first theory argues that overconfidence can be generated by bayesian updating from a common prior and truthful statements if individuals do not know their true type the second theory suggests that self image concerns asymmetrically affect the choice to receive new information about one s abilities and this asymmetry can produce overconfidence the third theory is that overconfidence is induced by the desire to send positive signals to others about one s own skill this suggests either a bias in judgement strategic lying or both we formulate this theory precisely using a large data set of relative ability judgements about two cognitive tests we reject the restrictions imposed by the bayesian model and also reject a key prediction of the self image models that individuals with optimistic beliefs will be less likely to search for further information about their skill because this information might shatter their self image we provide evidence that personality traits strongly affect relative ability judgements in a pattern that is consistent with the third theory of social signalling our results together suggest that overconfidence in statements is more likely to be induced by social concerns than by either of the other two factors copyright 2013 oxford university press

political uncertainty and public financing costs evidence from u s gubernatorial elections and municipal bond markets this research investigates how political uncertainty around u s gubernatorial elections in uences the borrowing costs of public debt measured by yields of municipal bonds our evidence from both the new issuance market and the secondary market shows that yields of municipal bonds increase sharply by 6 to 8 basis points before elections and then reverse afterward elections have more pronounced impact during economic downturns when outcomes are less predictable and when states have more outstanding debt several state institutions such as gaap budgeting spending limits and tax increase limits help to mitigate the adverse impact of political uncertainty

do after tax returns affect mutual fund inflows abstract this paper explores the relationship between the after tax returns that taxable investors earn on equity mutual funds and the subsequent cash inflows to these funds previous studies have documented that funds with high pretax returns attract greater inflows this paper presents evidence based on a large sample of retail equity mutual funds over the period 1993 1999 that after tax returns have more explanatory power than pretax returns in explaining inflows in addition funds with large overhangs of unrealized capital gains experience smaller inflows all else equal than funds without such unrealized gains a large capital gain overhang discourages both gross fund inflows and gross outflows but the inflow effect dominates the outflow effect

investor attention overconfidence and category learning abstract motivated by psychological evidence that attention is a scarce cognitive resource we model investors attention allocation in learning and study the effects of this on asset price dynamics we show that limited investor attention leads to category learning behavior i e investors tend to process more market and sector wide information than firm specific information this endogenous structure of information when combined with investor overconfidence generates important features observed in return comovement that are otherwise difficult to explain with standard rational expectations models our model also demonstrates new cross sectional implications for return predictability

the earnings announcement premium around the globe abstract u s stocks have been shown to earn higher returns during earnings announcement months than during non announcement months we document that this earnings announcement premium exists across the globe moreover it is not isolated to a few countries of the 20 countries with enough data to conduct a within country analysis nine exhibit a significantly positive premium a cross country analysis finds that the premium is strongest in countries with the greatest increase in idiosyncratic volatility around the time of their firms earnings announcements suggesting that uncertainty over the earnings information to be disclosed is a primary driver of the global announcement premium

municipal bond liquidity and default risk this paper examines the pricing of municipal bonds i use three distinct complementary approaches to decompose municipal bond spreads into default and liquidity components and find that default risk accounts for 74 to 84 of the average spread after adjusting for tax exempt status the first approach estimates the liquidity component using transaction data the second measures the default component with credit default swap data and the third is a quasi natural experiment that estimates changes in default risk around pre refunding events the price of default risk is high given the rare incidence of municipal default and implies a high risk premium

time preference and life cycle consumption with endogenous survival we provide a structural theory of time preference and derive a functional form of intertemporal preferences by postulating that individuals make their life cycle consumption choices as if to maximize expected lifetime this yields a nontime separable expected utility representation where the inverse of the coefficient of intertemporal substitution exceeds the coefficient of relative risk aversion the rate of time preference depends on the inverse of expected remaining lifetime and the effect of age on the productivity of consumption in affecting health the preference formulation is applied in a standard intertemporal consumption model to illustrate the implied life cycle consumption choices

does population pressure induce farm intensification empirical evidence from tigrai region ethiopia the scarcity of land for crop and livestock production is critical in countries with growing populations the idea that increasing population density leads to natural resource depletion and economic failure as predicted by malthus or rather to farm intensification as hypothesized by boserup motivates this research this article examines how high population pressure in northern ethiopia influences smallholders farm intensification by applying recursive estimation with a control function approach using data from 518 randomly selected farmers although our empirical results are more in favor of the boserupian hypothesis the findings also reveal that both malthusian and boserupian forces coexist consistent with malthus theory high population pressure is found to be associated with small farm size and herd size population pressure affected both technology use breed cow stall feeding and modern cattle feed and output supply milk yield milk income and straw output as predicted by boserup s theory the use of modern input and output supply initially increases with increasing population pressure but declines again when population densities pass a critical threshold 800 persons km2 supporting malthus hypothesis the estimation results also revealed that both milk and straw supply responded positively to prices free grazing and stall feeding are found to be complementary activities likewise crop farm income and off farm job have a nonlinear relation with population pressure implying that both initially increase and then decrease with rising population pressure

affective decision making a theory of optimism bias abstract optimism bias is inconsistent with the independence of decision weights and payoffs found in models of choice under risk and uncertainty such as expected utility theory subjective expected utility and prospect theory we therefore propose an alternative model of risky and uncertain choice where decision weights affective or perceived risk are endogenous affective decision making adm is a strategic model of choice under risk and uncertainty where we posit two cognitive processes the rational and the emotional process the two processes interact in a simultaneous move intrapersonal potential game and observed choice is the result of a pure strategy nash equilibrium in this game we show that regular adm potential games have an odd number of locally unique pure strategy nash equilibria and demonstrate this finding for affective decision making in insurance markets we prove that adm potential games are refutable by axiomatizing the adm potential maximizers

the time vs money effect shifting product attitudes and decisions through personal connection the results of five field and laboratory experiments reveal a time versus money effect whereby activating time vs money leads to a favorable shift in product attitudes and decisions because time increases focus on product experience activating time vs money augments one s personal connection with the product thereby boosting attitudes and decisions however because money increases the focus on product possession the reverse effect can occur in cases where merely owning the product reflects the self i e for prestige possessions or for highly materialistic consumers the time versus money effect proves robust across implicit and explicit methods of construct activation

addiction and cue triggered decision processes we propose a model of addiction based on three premises 1 use among addicts is frequently a mistake 2 experience sensitizes an individual to environmental cues that trigger mistaken usage 3 addicts understand and manage their susceptibilities we argue that these premises find support in evidence from psychology neuroscience and clinical practice the model is tractable and generates a plausible mapping between behavior and the characteristics of the user substance and environment it accounts for a number of important patterns associated with addiction gives rise to a clear welfare standard and has novel implications for policy

a dual self model of impulse control we propose that a simple dual self model gives a unified explanation for several empirical regularities including the apparent time inconsistency that has motivated models of quasi hyperbolic discounting and rabin s paradox of risk aversion in the large and small the model also implies that self control costs imply excess delay as in the o donoghue and rabin models of quasi hyperbolic utility and it explains experimental evidence that increased cognitive load makes temptations harder to resist the base version of our model is consistent with the gul pesendorfer axioms but we argue that these axioms must be relaxed to account for the effect of cognitive load

agricultural technology crop income and poverty alleviation in uganda summary this paper evaluates the ex post impact of adopting improved groundnut varieties on crop income and poverty in rural uganda the study utilizes cross sectional data of 927 households collected in 2006 from seven districts in uganda using propensity score matching methods we find that adopting improved groundnut varieties technology significantly increases crop income and reduces poverty the positive and significant impact on crop income is consistent with the perceived role of new agricultural technologies in reducing rural poverty through increased farm household income this study supports broader investment in agriculture research to address vital development challenges reaching the poor with better technologies however requires policy support for improving extension efforts access to seeds and market outlets that simulate adoption

life cycle individual thrift and the wealth of nations this paper provides a review of the theory of the determinants of individual and national thrift that has come to be known as the life cycle hypothesis lch of saving applications to some current policy issues are also discussed part i deals with the state of the art on the eve of the formulation of the lch some 30 years ago part ii sets forth the theoretical foundations of the model in its original formulation and later amendment calling attention to various implications distinctive to it and sometimes counter intuitive it also includes a review of a number of crucial empirical tests both at the individual and the aggregate level part iii reviews some applications of lch to current policy issues though only in sketchy fashion as space constraints prevent fuller discussion this abstract was borrowed from another version of this item

fiscal foresight and information flows news or foresight about future economic fundamentals can create rational expectations equilibria with non fundamental representations that pose substantial challenges to econometric efforts to recover the structural shocks to which economic agents react using tax policies as a leading example of foresight simple theory makes transparent the economic behavior and information structures that generate non fundamental equilibria econometric analyses that fail to model foresight will obtain biased estimates of output multipliers for taxes biases are quantitatively important when two canonical theoretical models are taken as data generating processes both the nature of equilibria and the inferences about the effects of anticipated tax changes hinge critically on hypothesized information flows different methods for extracting or hypothesizing the information flows are discussed and shown to be alternative techniques for resolving a non uniqueness problem endemic to moving average representations

non farm work and food security among farm households in northern ghana this paper examines the impact of non farm work on household income and food security among farm households in the northern region of ghana we analyze the impact by employing propensity score matching method that accounts for self selection bias the matching results show that participation in non farm work exerts a positive and statistically significant effect on household income and food security status supporting the widely held view that income from non farm work is crucial to food security and poverty alleviation in rural areas of developing countries

optimal beliefs in the long run an overlapping generations perspective abstract people have the natural tendency to be optimistic and believe that good outcomes in the future are more likely but also want to avoid overestimation that could result in bad decision making brunnermeier brunnermeier and parker 2005 and brunnermeier et al 2007 established an optimal beliefs framework that balances these two incentives this paper follows and extends the optimal beliefs framework to consider optimal beliefs in the long run in an overlapping generations sense assuming no short selling results show that in almost all cases there does not exist a stable and interior long term optimal belief

government debt and private leverage an extension of the miller theorem abstract this paper shows how government financing decisions can influence the corporate decision to use debt or equity finance in particular it is shown that an increase in the stock of taxable government debt reduces the equilibrium quantity of corporate debt and that an increase in the stock of tax free government debt reduces the equilibrium quantity of corporate equity the effects of inflation rate and tax rate changes are also considered

agricultural technology adoption and poverty reduction a propensity score matching analysis for rural bangladesh this study aims at shedding some light on the potential impact of agricultural technology adoption on poverty alleviation strategies it does so through an empirical investigation of the relationship between technological change of the green revolution type and wellbeing of smallholder farm households in two rural bangladeshi regions as technology adoption is not randomly assigned but there is self selection into treatment the paper tackles a methodological issue in assessing the causal effect of technology on farm household wellbeing through the non parametric p score matching analysis it pursues a targeted evaluation of whether adopting a modern seed technology causes resource poor farmers to improve their income and decrease the propensity to fall below the poverty line it finds a robust and positive effect of agricultural technology adoption on farm household wellbeing suggesting that there is a large scope for enhancing the role of agricultural technology in directly contributing to poverty alleviation 2006 elsevier ltd all rights reserved

repeated games with general discounting we introduce a general class of time discounting which includes time inconsistent ones into repeated games with perfect monitoring a strategy prole is called an agent

theories of the mind economics has traditionally relied on revealed preferences and occasionally on verbal reports to understand the desires of people another source of information has been developed in recent years the direct observation of choice processes this mechanism possible thanks to the improvements in the designs and techniques to measure brain activity is explored in the bur geoning field of experimental neuroeconom ics see paul w glimcher and aldo rustichini 2004 and colin camerer george loewenstein and drazen prelec 2005 for recent surveys in this article we argue that the evidence on brain activity can also be used to build theo retical models that help us understand choices and predict behaviors we label this research neuroeconomic theory in section i we describe the procedure discuss some advan tages over traditional methodologies and estab lish some facts that motivate our approach in section ii we illustrate the methodology with two brain based models of decision making i what is neuroeconomic theory neuroeconomic theory is an interdisciplin ary line of investigation that combines research from neuroscience neurobiology and econom ics experimental neuroscience and neurobiology provide detailed evidence of the functionality interconnectivity and physiological constraints of the brain systems involved in decision making microeconomic theory supplies the toolkit to build simple optimization models that incorporate these network interactions and well defined con straints into the mechanisms of choice

rationality of choices in subsidized crop insurance markets the u s crop insurance market has several features that set it apart from other insurance markets these include explicit government subsidies with an average premium subsidy rate of about 60 in recent years and the legislative requirement that premium rates be set at actuarially fair levels where the federal government sets rates and pays all costs related to insurance policy sales and services bearing these features in mind we examine the extent to which farmers crop insurance choices conform to economic theory a standard expected utility maximization framework is constructed to analyze trade offs between higher risk protection and larger subsidy payments we decompose the effect of coverage level on expected utility into insurance premium loading and subsidy transfer effects where the loading effect vanishes if rates are actuarially fair given an actuarially fair premium we infer that a rational farmer should choose either the coverage level with the highest premium subsidy or a higher coverage level evidence from a large insurance unit level dataset contradicts this theoretical inference and so suggests anomalous insurance decisions in a novel application of the mixed logit framework we show that the probability an insurance product is chosen declines as out of pocket premium expenditures increase even though higher values of these expenditures should reflect improved grower welfare premium expenditures appear to be more salient than the uncertain future benefits they support we apply our regression to the recent trend yield adjustment innovation in crop insurance

an evaluation of the swedish system of active labour market programmes in the 1990s we investigate the presence of short and long term effects from joining a swedish labor market program vis a vis more intense job search in open unemployment overall the impact of the program system is found to have been mixed joining a program has increased employment rates among participants a result robust to a misclassification problem in the data on the other hand it has also allowed participants to remain significantly longer on unemployment benefits and more generally in the unemployment system this being particularly the case for those entitled individuals entering a program around the time of their unemployment benefits exhaustion

neuroeconomics why economics needs brains neuroeconomics uses knowledge about brain mechanisms to inform economic theory it opens up the black box of the brain much as organizational economics opened up the theory of the firm neuroscientists use many tools including brain imaging behavior of patients with brain damage animal behavior and recording single neuron activity the key insight for economics is that the brain is composed of multiple systems which interact controlled systems executive function interrupt automatic ones brain evidence complicates standard assumptions about basic preference to include homeostasis and other kinds of state dependence and shows emotional activation in ambiguous choice and strategic interaction

auction failures and the market for auction rate securities abstract the market for auction rate securities ars made headlines during the second week of february 2008 when auctions at which the bonds interest rates reset experienced a wave of failures contrary to headlines that attribute the failures to a frozen market or investors irrationality we find that 1 even at their height less than 50 of ars experienced auction failures 2 the likelihood of auction failure was directly related to the level of the bonds maximum auction rates 3 the implied market clearing yields of bonds with failed auctions were significantly above their maximum auction rates and 4 ars yields were generally higher than yields of various cash equivalent investment alternatives we infer that investors priced the possibility of auctions failures into ars yields and rationally declined to bid for bonds for which required market yields exceeded their maximum auction rates

the supply of information by a concerned expert how much information should a policy maker pass on to a currently ill informed citizen in this paper we address this classic question of crawford and sobel 1983 in a setting in which beliefs impact utility as in kreps and porteus 1978 we show that this simple amendment has far reaching implications in particular our question cannot be answered using a utility function with standard revealed preference foundations revealed preference cannot tell us whether in a particular state s a decision maker prefers to believe incorrectly that the state is t or to know the truth to solve the model we go beyond the classical model in two respects relying on the psychological expected utility model of caplin and leahy 2001 to capture preferences and the psychological game model of geanakoplos pearce and stacchetti 1989 to capture strategic interactions

differential interpretation of public signals and trade in speculative markets most models of trade in speculative markets assume that agents interpret public information identically we provide empirical evidence on the relation between the volume of trade and stock returns around public announcements and we argue that the evidence is inconsistent with this assumption we then develop a model of trade around public announcements that incorporates differential interpretations and is consistent with the observed volume return relation then we test the standard model of belief revision underlying most models of trade using stock brokerage research analysts earnings forecasts the hypthesis of identical interpretations seems inconsistent with the forecast revisions in these data

the quantitative effects of tax foresight not all states are equal abstract this paper explores the effect of federal tax news on state economic activity we estimate a factor augmented vector autoregression favar model which allows us to consider the possibility that unobserved factors such as credit and fiscal conditions might be relevant for modeling the dynamic response of aggregate and state level economic activity we identify tax foresight as a shock to the implicit tax rate measured by the yield spread between the one year tax exempt municipal bond and the one year taxable treasury bond our results suggest that an increase in the implicit tax rate raises national output over much of the anticipation period in addition anticipated tax increases give rise to expansions in state personal income and employment we find that the variation in the responsiveness of economic activity across states is mostly explained by differences in industrial composition and income distribution as well as by some demographic characteristics such as median income and education finally using a proxy for exogenous changes in federal tax revenues we investigate the dynamics of state level personal income and employment our results point to considerable heterogeneity in the response across u s states moreover they reveal that the long run multiplier for an anticipated increase in tax revenues is about a tenth of the short run multiplier for an unanticipated increase in taxes

municipal debt and marginal tax rates is there a tax premium in asset prices we study the marginal tax rate incorporated into short term municipal rates using municipal swap market data using an affine model we identify the marginal tax rate and the credit liquidity spread in 1 week tax exempt rates as well as their associated risk premia the marginal tax rate averages 38 0 and is related to stock bond and commodity returns the tax risk premium is negative consistent with the strong countercyclical nature of after tax fixed income cash flows these results demonstrate that tax risk is a systematic asset pricing factor and help resolve the muni bond puzzle

dealer intermediation and price behavior in the aftermarket for new bond issues municipal bonds trade in decentralized broker dealer markets and are underpriced when issued but unlike equities the average price rises slowly over several days newly issued municipal bonds have high levels of price dispersion and the average price rises because the mix of trade sizes changes over time while large trades occur close to the reoffering price small trades occur between the reoffering price to as much as 5 above the reoffering price using a mixed distribution model we quantify the losses uninformed traders or issuers give up to broker dealers

psychological expected utility theory and anticipatory feelings we extend expected utility theory to situations in which agents experience feelings of anticipation prior to the resolution of uncertainty we show how these anticipatory feelings may result in time inconsistency we provide an example from portfolio theory to illustrate the potential impact of anticipation on asset prices

procrastination of enjoyable experiences abstract the tendency to procrastinate applies not only to aversive tasks but also to positive experiences with immediate benefits the authors propose that models of time discounting can explain this behavior and they test these predictions with field data and experiments a multicity study shows that people with unlimited time windows delay visiting desirable landmarks however procrastination is reduced when the window of opportunity is constrained similarly people procrastinate in redeeming gift certificates and gift cards with long deadlines more than those with short deadlines resulting in overall lower redemption rates these results run counter to participants predictions and typical models of impulsive behavior

the tax rate induced bond substitution hypothesis and the traditional textbook treatment of the relationship between tax free and taxable bond yields abstractthis empirical study posits and tests the tax rate induced bond substitution hypothesis wherein the propensity for bond buyers to substitute tax exempt municipal bonds for taxable bonds

risk aversion in agricultural water management investments in northern ghana experimental evidence sub saharan africa ssa is one of the regions in the world most affected by food price volatility and production variability poor small scale farmers in this region are particularly vulnerable to this variability as a result households may be reluctant to adopt new agricultural water management awm technologies when they involve more risk than what they mitigate despite risk s role in agricultural water management investments there have been few attempts to estimate the magnitude and nature of risk aversion in relation to this type of farm decisions to partially close this gap this paper uses an experimental approach applied to 137 households in northern ghana we find that more than 70 percent of households are moderately or slightly risk averse this contrasts with other studies in ssa where most household decision makers exhibit severe to extreme risk aversion we also find that households that stand to lose as well as gain something from participation in games are less risk averse than households playing gains only games this result suggests that most farmers current wealth put them at risk of falling into a poverty trap thus the losses from the riskiest investments on awm technologies may fall more heavily on the poor suggesting that additional efforts be given to the creation of viable insurance mechanisms

tax arbitrage and the existence of equilibrium prices for financial assets in models where both investors and securities are subject to differential taxation there may be no set of prices that rule out infinite gains to trade or tax arbitrage this paper characterizes the joint restrictions on financial asset returns and investors tax schedules that preclude tax arbitrage in the absence of short sale constraints the authors show that if there exists any configuration of marginal tax rates on investors tax schedules that rule out infinite gains to trade then no tax arbitrage prices will exist they also show that the existence of no tax arbitrage prices ensures the existence of equilibrium prices the effects of differential taxation on the equilibrium prices of financial assets have attracted much attention from financial economists in recent years otherwise identical securities that contribute to taxable income to different degrees will in general be valued differently by taxable investors as a result tax considerations have been useful in helping explain the effect of dividend yield on stock returns the effect of coupon levels and term to maturity on bond prices 2 the timing of investors portfolio transactions 3 and the observed capital structures of firms 4 while a rich set of observed behaviors can be better understood by reference to differential taxation there are well known difflculties in dealing with taxes in a general equilibrium setting to clear markets relative prices must reflect the marginal rates of substitution of all agents simultaneously when tax rates differ across investors however this condition can be impossible to achieve to illustrate consider a world of perfect certainty with two assets a tax exempt municipal bond and a taxable government bond to equate marginal rates of substitution the rate of return on the government bond rg must equal that on the municipal rm grossed up by one minus the investor s marginal tax rate ti that is rg rm 1 ti if there are investors in more than one tax bracket this condition will obviously be impossible to satisfy for all of them simultaneously both authors from graduate school of industrial administration carnegie mellon university we wish to thank scott richard steven spear and an anonymous referee for helping us sort through the issues considered here seminar participants at columbia wharton the johnson symposium on asset pricing at the university of wisconsin madison and the 1986 western finance association meeting also provided valuable comments we are also grateful for the financial support provided by the center for public policy research carnegie mellon university all errors are our own responsibility

modeling the psychology of consumer and firm behavior with behavioral economics abstract marketing is an applied science that tries to explain and influence how firms and consumers behave in markets marketing models are usually applications of standard economic theories which rely on strong assumptions of rationality of consumers and firms behavioral economics explores the implications of the limits of rationality with the goal of making economic theories more plausible by explaining and predicting behavior more accurately while maintaining formal power this article reviews six behavioral economics models that are useful to marketing three models generalize standard preference structures to allow for sensitivity to reference points and loss aversion social preferences toward outcomes of others and preference for instant gratification the other three models generalize the concept of game theoretic equilibrium allowing decision makers to make mistakes encounter limits on the depth of strategic thinking and equilibrate by learning from feedback the authors also discuss a sp

tax efficient trading of municipal bonds the author proposes a dynamic strategy to optimize the after tax performance of a municipal bond portfolio this study extends previous work on one time tax loss selling he considers a potential tax driven trading opportunity as an option with quantifiable value acquired automatically and without cost in a taxable account within this formulation selling a bond and reinvesting in another also entails the swap of the associated tax options when considering the value of the tax option acquired upon reinvestment the time to optimum execution is drastically reduced in comparison to one time selling the author assumes that the choice of reinvestment bonds maintains the same interest rate exposure as that from before the sale

secondary trading costs in the municipal bond market using new econometric methods we separately estimate average transaction costs for over 167 000 bonds from a 1 year sample of all u s municipal bond trades municipal bond transaction costs decrease with trade size and do not depend significantly on trade frequency also municipal bond trades are substantially more expensive than similar sized equity trades we attribute these results to the lack of bond market price transparency additional cross sectional analyses show that bond trading costs increase with credit risk instrument complexity time to maturity and time since issuance investors and perhaps ultimately issuers might benefit if issuers issued simpler bonds

taxation portfolio choice and debt equity ratios a general equilibrium model this paper explores the portfolio behavior of investors differing with respect to both tax rates and risk aversion emphasizing the role of constraints on individual and firm behavior in ensuring the existence of and characterizing portfolio equilibrium under certain conditions on the securities available in the market which also are necessary for shareholders to be unanimous in supporting firm value maximization investors will be segmented by tax rate into two groups one specialized in equity and the other in debt though the relative wealths of the two groups determine the aggregate debt equity ratio each firm will be indifferent to its financial policy

optimal choice and beliefs with ex ante savoring and ex post disappointment we propose a new decision criterion under risk in which individuals extract both utility from anticipatory feelings ex ante and disutility from disappointment ex post the decision maker chooses his degree of optimism given that more optimism raises both the utility of ex ante feelings and the risk of disappointment ex post we characterize the optimal beliefs and the preferences under risk generated by this mental process and apply this criterion to a simple portfolio choice insurance problem we show that these preferences are compatible with first degree and second degree stochastic dominance and yield a preference for early resolution of uncertainty furthermore they are consistent with observed violations of the independence axiom such as the preference reversal in the allais paradox and predict that the decision maker takes on less risk compared to an expected utility maximizer our decision criterion can thus help explain the equity premium puzzle and the preference for low deductibles in insurance contracts

portfolio choice with illiquid assets we present a model of optimal allocation to liquid and illiquid assets where illiquidity risk results from the restriction that an asset cannot be traded for intervals of uncertain duration illiquidity risk leads to increased and state dependent risk aversion and reduces the allocation to both liquid and illiquid risky assets uncertainty about the length of the illiquidity interval as opposed to a deterministic nontrading interval is a primary determinant of the cost of illiquidity we allow market liquidity to vary from normal periods when all assets are fully liquid to illiquidity crises when some assets can only be traded infrequently the possibility of a liquidity crisis leads to limited arbitrage in normal times investors are willing to forgo 2 of their wealth to hedge against illiquidity crises occurring once every 10 years this paper was accepted by itay goldstein finance

ex dividend price behavior of common stocks this study examines common stock prices around ex dividend dates such price data usually contain a mixture of observations some with and some without arbitrageurs and or dividend capturers active our theory predicts that such mixing will result in a nonlinear relation between percentage price drop and dividend yield not the commonly assumed linear relation this prediction and another important prediction of theory are supported empirically in a variety of tests marginal price drop is not significantly different from the dividend amount thus over the last several decades one for one marginal price drop has been an excellent average rule of thumb article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

factors influencing adoption of land enhancing technology in the sahel lessons from a case study in niger abstract technical change through the introduction of land enhancing conservation technologies is essential to economic growth in the sahel tobit analysis was used to identify factors that motivate level and intensity of adoption of specific soil and water management technologies the results show that higher percentage of degraded farmland extension education lower risk aversion and the availability of short term profits are important for increasing the adoption and intensity of use of improved tassa and half crescent shaped earthen mounds age and attitudes to differential gains between farm and non farm income showed no influence on adoption three main policy implications emerge from these findings first technologies should be targeted to locations that have large percentages of degraded farmlands the probability of adoption and intensity of use are likely to be high at such locations second there is the need to provide extension education that demonstrates risk reduction capacities of conservation techniques this will make available information capable of stimulating adoption of land enhancing technologies finally policy makers should not seek to target innovations to younger farmers because age has no relationship to adoption of the improved tassa and half crescent shaped earthen mounds lessons from the case study have broad relevance to cropped areas in the sahel

positive time preference the case for positive time preference is absolutely compelling unless there is an infinite time horizon with the expectation of unending technological advance combined with what we call drastically diminishing marginal utility this finding holds both in the positive and normative senses a corollary is that savings are interest elastic

anticipation and the valuation of delayed consumption this paper presents a model of intertemporal choice that incorporates savoring and dread i e utility from anticipat ion of delayed consumption the model explains why an individual with positive time preference may delay desirable outcomes or get unpleas ant outcomes over with quickly contrary to the prediction of convent ional formulations of intertemporal choice implications of savoring and dread for savings behavior empirical estimation of discount rate s and public policy efforts to combat myopic behavior are explored the model provides an explanation for common violations of the indepe ndence axiom as applied to intertemporal choice copyright 1987 by royal economic society

performance of an agro forestry based payments for environmental services project in mozambique a household level analysis there has been a paucity of research on the impacts of small scale payments for environmental services pes projects in developing countries the aim of this paper is to evaluate the household level impacts of a small scale agro forestry based carbon sequestration project in rural mozambique in 2006 questionnaire based interviews were conducted quarterly of 290 randomly selected households in the buffer zone of the gorongosa national park in mozambique we used the propensity score matching technique to assess the pes project impacts on household cash income consumption expenditure forest resource use and crop yields we found that in contrast to nonparticipant households pes participant households earned more cash income incurred more consumption expenditure collected less forest products and harvested lower quantities of agriculture crops in addition we found through decomposition analysis that there was a differential in pes income both male headed and high income households were being favoured as project benefit recipients future pes projects should focus on a payment scheme that can better ensure the benefit to all the participant households and also pay extra attention on the benefits distribution to the vulnerable households

the diffusion of new agricultural technologies the case of crossbred cow technology in tanzania the recent literature on agricultural technology adoption shows that diffusion of new technologies varies significantly across space and time furthermore puzzles exist about why some seemingly profitable technologies are not adopted especially in livestock production we employ a hazard or duration function to explain diffusion of crossbred cow technology in a unique sample of tanzania farmers a farmer s adoption of crossbred technology depends positively on the proximity of his farm to other users on his schooling and on his access to credit and contact with extension agents

toward an understanding of dynamic moral decision making model free and model based learning in business settings decision makers facing moral issues often experience the challenges of continuous changes this dynamic process has been less examined in previous literature on moral decision making we borrow theories on learning strategies and computational models from decision neuroscience to explain the updating and learning mechanisms underlying moral decision processes specifically we present two main learning strategies model free learning wherein the values of choices are updated in a trial and error fashion sustaining the formation of habits and model based learning wherein the brain updates more general cognitive maps and associations thus sustaining flexible and state dependent behaviors we then summarize studies explaining the neuro computational processes of both learning strategies the calculation of prediction errors and valuation we conclude by emphasizing how the incorporation of dynamic aspects in moral decision making could open new avenues for understanding moral behaviors in a changing world

default risk cannot explain the muni puzzle evidence from municipal bonds that are secured by u s treasury obligations fama 1977 and miller 1977 predict that one minus the corporate tax rate will equate after tax yields from comparable taxable and tax exempt bonds empirical evidence shows that long term tax exempt yields are higher than theory predicts two popular explanations for this empirical puzzle are that relative to taxable bonds municipal bonds bear more default risk and include costly call options i study u s government secured municipal bond yields which are effectively default free and nonmalleable these municipal yields display the same tendency to be too high i conclude that differential default risk and call options do not explain the municipal bond puzzle article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

analysis of adoption and impacts of improved maize varieties in eastern zambia summary this paper analyzes the adoption and welfare impacts of improved maize varieties in eastern zambia using data obtained from a sample of over 800 farm households using both propensity score matching and endogenous switching regression models the paper shows that adoption of improved maize leads to significant gains in crop incomes consumption expenditure and food security results further show that improved maize varieties have significant poverty reducing impacts in eastern zambia the paper concludes with implications for policies to promote adoption and impacts of modern varieties in zambia

factors influencing farmers adoption of energy based water pumps and impacts on crop productivity and household income in pakistan abstract the current study is based on comprehensive cross sectional data set collected through field survey from all the four major provinces of pakistan i e punjab sindh kpk and balochitan in total 950 farmers were interviewed this paper attempts to examine the factors that influence farmers choice of water pumps e g electric diesel solar photovoltaic pv or biogas and to assess the impact of these water pumps on crop productivity household income and poverty the paper uses the multivariate probit model and propensity score matching approach in order to achieve these objectives the empirical results indicate that educated younger and wealthier farmers are more likely to adopt alternate energy based water pumps for irrigation access to credit facilities and frequent hours of load shedding are key factors influencing a farmer s decision to adopt alternative energy based water pumps rather than relying on electricity alternative energy sources have positive and significant impacts on the productivity of wheat rice and maize crops and on household income the use of alternative energy sources for water pumping has resulted in the reduction of poverty in the range of 11 20 the study has important policy implications the current energy crisis in pakistan has adversely affected farming operations and in turn crop yield and the use of water pumps for irrigation based on alternative energy sources has increased crop productivity access to these renewable energy technologies for water pumping should be encouraged through subsidies and easy availability of credit facilities as the majority of farmers in pakistan are resource poor with small landholdings

confidence enhanced performance there is ample evidence that emotions affect performance positive emotions can improve performance while negative ones may diminish it for example the fears induced by the possibility of failure or of negative evaluations have physiological consequences shaking loss of concentration that may impair performance in sports on stage or at school there is also ample evidence that individuals have distorted recollection of past events and distorted attributions of the causes of successes of failures recollection of good events or successes is typically easier than recollection of bad ones or failures successes tend to be attributed to intrinsic aptitudes or own effort while failures are attributed to bad luck in addition these attributions are often reversed when judging the performance of others the objective of this paper is to incorporate the first phenomenon above into an otherwise standard decision theoretic model and show that in a world where performance depends on emotions biases in information processing enhance welfare

how does gender affect the adoption of agricultural innovations the case of improved maize technology in ghana why do men and women adopt agricultural technologies at different rates evidence from ghana suggests that gender linked differences in the adoption of modern maize varieties and chemical fertilizer result from gender linked differences in access to complementary inputs this finding has important policy implications because it suggests that ensuring more widespread and equitable adoption of improved technologies may not require changes in the research system but rather introduction of measures that ensure better access for women to complementary inputs especially land labor and extension services

arbitrage pricing transaction costs and taxation of capital gains abstract this paper examines one of the few cases of seemingly redundant securities sets of three government bonds with the same maturity date within the bounds on relative bond prices established by tax exempt investors in a market with proportional transaction costs the taxation of capital gains on the basis of realization has a significant impact on relative prices the empirical evidence supports the tax option effect discussed by constantinides and ingersoll but does not generally support the segmented tax clientele equilibrium discussed by schaefer

impact of green control techniques on family farms welfare abstract using survey data of 375 family farms in five provinces of the huang huai hai plain this paper conducts a comprehensive measurement of family farms welfare within the framework of the capability approach theory furthermore using an endogenous switching regression model and a multinomial treatment effects model this paper evaluates the impact of the adoption or non adoption of green control techniques on family farms welfare and estimate the welfare effects of the degree and timing of adoption this research finds that the average treatment effect on family farm welfare with and without adopting green control techniques is significant at 0 084 and 0 046 respectively therefore green control techniques help to improve the welfare level of family farms compared with family farms that do not adopt green control techniques the welfare level of family farms adopting a high or low degree of green control techniques increases by 22 63 and 16 42 respectively and the welfare level of family farms given the early or late adoption of green control techniques increases by 5 87 and 7 57 respectively therefore the welfare effect of a high degree of adoption on family farms is greater and the welfare level of family farms with late adoption is higher

tax distortions and bond issue pricing abstract original issue premium oip bonds are the norm in the us tax exempt market but very rare in the taxable market a tax subsidy helps explain this disparity unlike bonds issued at par or discount the price of oip bonds can fall and yet remain above par providing secondary market buyers with more tax exempt coupon and less taxable market discount gain the subsidy for oip bonds explains additional previously undocumented empirical facts in a calibration exercise the subsidy s expected cost to the u s treasury is estimated at 1 7 billion per year

self confidence and personal motivation the maintenance and enhancement of self esteem has always been identified as a fundamental human impulse philosophers writers educators and of course psychologists have all emphasized the crucial role played by self image in motivation affect and social interactions the aim of this chapter is to bring these concerns into the realm of economic analysis and show that this has important implications for how agents process information and make decisions conversely the tools of economic modelling can help shed light on a number of apparently irrational behaviours documented by psychologists

the impact of water conservation and intensification technologies empirical evidence for rice farmers in ghana this study employs the propensity score matching model to examine the impact of the adoption of water conservation and intensification technologies on farm output and income among small scale lowland rice farmers in the northern region of ghana the matching was conducted based on the mahalanobis distance combined with the propensity score balancing tests by checking the mean standardized absolute bias in the matched sample were conducted as well as a sensitivity analysis was conducted to check for hidden bias due to unobservable selection the empirical results show a positive and significant impact of the adoption of bunds technology on input demand as well as a positive but insignificant impact on output supply and net returns adopters of the dibbling technology were found to have higher output supply whereas no statistically significant difference was found between the incomes of adopters and nonadopters of dibbling seed method the results however reveal a positive and significant effect on output and net returns when the dibbling method is combined with intensified weeding the estimates were found to be relatively insensitive to hidden bias

a simple model of the taxable and tax exempt yield curves i examine the anomalous behavior of the taxable and tax exempt yield curves long municipal yields appear too high relative to the equivalent after tax yield that can be earned in treasury or corporate bonds i discuss existing explanations of the problem and propose a simple model that relates the yields of taxable bonds to the yield curve for par tax exempts the ratio of the tax exempt yield to the taxable yield increases with maturity in the model so it is consistent with observed phenomena such as inverted yield curves for taxables and contemporaneous rising yield curves for tax exempts statistical and descriptive comparisons between the yields predicted by the model and observed yields on par bonds that the model has some promise in explaining the apparent anomalies in the behaviors of the two yield curves article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies