reaction or interaction spatial process identification in multi tiered government structures abstract this paper models horizontal and vertical fiscal externalities in a multi tiered structure of government and implements maximum likelihood and instrumental variables estimation techniques to identify the source of spatial dependence in english local government expenditures the results show that when vertical fiscal externalities among upper tier county authority and lower tier district authority expenditures are explicitly taken into account the estimated magnitude of inter district fiscal interactions is substantially reduced the observed positive spatial autocorrelation among district expenditures can consequently be attributed to a large extent to common reaction to county fiscal policies rather than to actual strategic interaction

index insurance quality and basis risk evidence from northern kenya the number of index insurance pilots in developing countries has grown tremendously in recent years but there has been little progress in our understanding of the quality of those products basis risk or remaining uninsured risk is a widely recognized but rarely measured feature of index insurance product quality this article uses eight semi annual seasons of longitudinal household data to examine the distribution of basis risk associated with an index based livestock insurance ibli product in northern kenya we find that ibli coverage reduces exposure to covariate risk due to large shocks and mitigates downside risk substantially for many households even at commercial premium rates but index insurance is no magic bullet insured households continue to face considerable basis risk examining the components of basis risk we find that ibli reduces exposure to covariate risk due to high loss events by an average of 63 the benefits of reduced covariate risk exposure are relatively small however due to high exposure to seemingly mostly random idiosyncratic risk even in this population often thought to suffer largely from covariate shocks the result is that ibli policyholders are left with an average of 69 of their original risk due to high loss events this research underscores the need for caution when promoting index insurance as a risk mitigation tool as well as the importance of product quality evaluation

tax base effects and fiscal externalities of local capital taxation evidence from a panel of german jurisdictions abstract this paper provides empirical evidence on the tax base effects of local capital taxation using a large panel of german municipalities it tests whether both the local tax rate and the tax rate in adjacent jurisdictions affect the local tax base the results obtained from a spatial gmm approach confirm a strong negative impact of the local tax rate whereas the average tax rate of neighboring municipalities proves insignificant only if interacted with the relative population size of neighbors a significant positive impact is found indicating that externalities from taxing decisions of adjacent jurisdictions are experienced only by relatively small municipalities

local government efficiency determinants and spatial interdependence we analyse the determinants of local government efficiency taking into account the presence of spatial interactions among neighbouring municipalities to do so first we estimate an efficiency inde

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

stochastic dominance and mean variance measures of profit and loss for business planning and investment in this paper we first extend the stochastic dominance sd theory by introducing the first three orders of both ascending sd asd and descending sd dsd to decisions in business planning and investment to risk averse and risk loving decision makers so that they can compare both return and loss we provide investors with more tools for empirical analysis with which they can identify the first order asd and dsd prospects and discern arbitrage opportunities that could increase his her utility as well as wealth and set up a zero dollar portfolio to make huge profit our tools also enable investors and business planners to identify the third order asd and dsd prospects and make better choices to complement the stochastic dominance approach we also introduce an improved mean variance criterion to decisions in business planning or investment on both return and loss for risk averse and riskloving investors we then illustrate the superiority of the present approaches with well known examples in the literature and discuss the relationship between the improved stochastic dominance and mean variance criteria

invariant risk attitudes concepts of constant absolute risk aversion and constant relative risk aversion have proved useful in the analysis of choice under uncertainty but are quite restrictive particularly when they are imposed jointly a generalization of constant risk aversion referred to as invariant risk aversion is developed invariant risk aversion is closely related to the possibility of representing preferences over state contingent income vectors in terms of two parameters the mean and a linearly homogeneous translation invariant index of riskiness the best known index with such properties is the standard deviation the properties of the capital asset pricing model usually expressed in terms of the mean and standard deviation may be extended to the case of general invariant preferences c 2003 elsevier inc all rights reserved

gains from diversification on convex combinations a majorization and stochastic dominance approach by incorporating both majorization theory and stochastic dominance theory this paper presents a general theory and a unifying framework for determining the diversification preferences of risk averse investors and conditions under which they would unanimously judge a particular asset to be superior in particular we develop a theory for comparing the preferences of different convex combinations of assets that characterize a portfolio to give higher expected utility by second order stochastic dominance our findings also provide an additional methodology for determining the second order stochastic dominance efficient set

optimum area yield crop insurance cet article determine le contrat optimal d assurance dont l indemnite depend du rendement agrege sur recoltes d un bassin de production le schema optimal d assurance est base sur le coefficient individuel de regression qui mesure la sensibilite du rendement agrege a des variations du rendement agrege une indemnite est versee lorsque le rendement agrege est inferieur superieur a un rendement critique si le coefficient de regression est positif negatif le contrat optimal contient une franchise evanescente si le coefficient de regression est superieur a l unite

a theory of interregional tax competition a general equilibrium model is constructed to study tax competition where local governments compete for capital by holding down property tax rates and public expenditure levels an exact definition of tax competition is provided and both the existence and nonexistence of tax competition are shown to be theoretically possible it is argued however that tax competition must occur under empirically reasonable conditions inefficiency in public production is also explicitly modeled the amount of capital used to produce a given level of public service output is shown to be greater than that which is required to minimize costs evaluated at the prices facing private firms

spatial patterns in local taxation tax mimicking or error mimicking this paper tests for mimicry in local tax setting by using a panel data set of the english non metropolitan districts in the 1980s when property tax rate variability across districts was highest the results confirm the presence of large and significant spatial interactions among districts even after allowing for district specific and time effects a district appears to be significantly affected by its neighbours policies a 10 increase in the local property tax rate of a district s neighbours leads to an increase of 4 5 in its own property tax rate on the other hand the absence of correlation in tax rates between lower tier district authorities and upper tier county authorities suggests that the spatial pattern in district tax rates is not simply driven by spatially auto correlated shocks

a pseudo bayesian model in financial decision making with implications to market volatility under and overreaction abstract this paper develops a model of weight assignments using a pseudo bayesian approach that reflects investors behavioral biases in this parsimonious model of investor sentiment weights induced by investors conservative and representative heuristics are assigned to observations of the earning shocks of stock prices such weight assignments enable us to provide a quantitative link between some market anomalies and investors behavioral biases the seriousness of an anomaly can be quantitatively assessed by investigating into its dependency on weights new results other than the short run underreaction and long run overreaction can be derived and new hypotheses can be formed

on the measurement of congestion in the provision of local public goods abstract this paper contends that a measurement problem the zoo effect has led to upwardly biased estimates of the degree to which local public goods are subject to congestion the suggestion is that the observed positive correlation between public expenditure and population size reflects in large measure the wider range of services provided in more populous jurisdictions not simply a high propensity of these goods to become congested

valuing fuel diversification in power generation capacity planning abstract deterministic capacity planning problems in electricity systems can be solved by comparing technology specific long term and short term marginal costs in an uncertain market environment mean variance portfolio mvp theory provides a consistent framework to balance risk and return in power generation portfolios focusing on fuel price risks mvp theory can be adopted to determine the welfare efficient system generation technology mix existing literature on mvp applications in electricity generation markets uses predominantly numerical methods to characterize portfolio risks in contrast this article presents a novel analytical approach combining conceptual elements of classical capacity planning models and mvp theory to derive the efficient portfolio structure consisting of an arbitrary number of plant technologies given uncertain fuel prices for this purpose we provide a static optimization model which allows to fully capture fuel price risks in a mean variance portfolio framework the analytically derived optimality conditions contribute to a better understanding of the optimal investment policy and its risk characteristics compared to existing numerical methods furthermore we demonstrate an application of the proposed framework and provide results for the german electricity market which has been hardly treated in mvp literature on electricity markets this article provides easily interpretable analytical optimality conditions for efficient generation portfolios from a societal point of view and therewith contributes to a better understanding of mvp in electricity applications

risk efficient irrigation strategies for wheat abstract agricultural production is risky when farmers are risk averse they are likely to put a premium on production methods that reduce perceived risks irrigation is generally believed to be a risk reducing input by using the concept of stochastic dominance risk efficient irrigation policies for wheat grown in central india are identified and quantitative estimates of benefits due to risk reduction are obtained such benefits were found to be of a large order of magnitude the more common methods such as mean variance analysis tended to over estimate the benefits

are crop yields normally distributed the evidence for nonnormality of crop yields is reassessed three methodological problems are identified in typical yield distribution analyses i misspecification of the nonrandom components of yield distributions ii missreporting of statistical significance and iii use of aggregate timeseries ats data to represent farm level yield distributions one or more of these problems infect virtually all evidence against normality to date the positive contribution of the article is a set of principles that must be followed in any valid investigation of yield normality

negative moments risk aversion and stochastic dominance a simple moment ordering condition is shown to be necessary for stochastic dominance closely related results on generalizations of the geometric and harmonic means are also provided an ordering of the moment generating functions is shown to be necessary and sufficient for stochastic dominance the results have a straightforward and useful interpretation in terms of constant relative and absolute risk aversion utility functions these results are used to provide necessary and sufficient conditions for optimality of distributions on an important class of utility functions

does electoral accountability affect economic policy choices evidence from gubernatorial term limits this paper analyzes the behavior of u s governors from 1950 to 1986 to investigate a reputation building model of political behavior we argue that differences in the behavior of governors who face a binding term limit and those who are able to run again provides a source of variation in discount rates that can be used to test a political agency model we find evidence that taxes spending and other policy instruments respond to a binding term limit if a democrat is in office the result is a fiscal cycle in term limit states which lowers state income when the term limit binds

parimutuel contests with strategic risk sensitive bettors abstractexisting models in the parimutuel betting literature typically explain betting data by either assuming a single representative bettor with certain risk preferences or by assuming that a number of risk neutral bettors compete strategically within a game theoretic framework we construct a theoretical framework of parimutuel markets in which we model both strategic interaction and individual bettor risk preferences distinguishing between sophisticated insiders and recreational outsiders we solve this model analytically for the optimal insider betting amount in a static symmetric nash equilibrium a new data set of 126 million individual horse race bets in new zealand from 2006 to 2014 allows us to calibrate the model we find that insiders those betting 100 or more outperform outsiders by 7 5 in terms of realized returns the best fit of the model to the data is obtained when insiders are assumed to be risk neutral and to have an information advantage of 0 08 in probability terms this findin

elasticity of risk aversion and international trade abstract this paper analyzes export production in the presence of exchange rate uncertainty under mean variance preferences we present the elasticity of risk aversion since this elasticity concept permits a distinct investigation of risk and expectation effects on exports counterintutitive results are possible e g although the home currency is revaluating devaluating exports by the firm increase decrease this fact may contribute to the explanation of disturbing empirical results

the robustness of risk return nonlinearities to the normality assumption in a recent study tinic and west 1986 empirically reexamine the risk return relationship posited by the traditional mean variance capm they find a positive nonlinear relationship between risk and return except during january when the market rewards bearing nonsystematic risk this study examines the hypothesis that nonnormality of re turn distributions may account for some of these anomalous results we compare shalit and yitzhaki s 1984 mean extended gini capm an equilibrium asset pricing relation that is independent of the form of the underlying asset distribution with the traditional capm our results indicate that the nonlinear risk return relationship and the size and january effects are robust to nonnormality of return distributions

two moment decision models and expected utility maximization two moment decision models are consistent with expected utility maximization only if the choice set or the agent s preferences are restricted this paper identifies a restriction which is sufficient to ensure this consistency and confirms that it holds in many economic models the implications for economic analysis are then derived two different approaches to representing an agent s preferences over strategies yielding random payoffs are in wide use under the mean standard deviation ms approach the agent is assumed to rank the alternatives according to the value of some function defined over the first two moments of the random payoff while the expected utility eu criterion assumes that the expected value of some utility function defined over payoffs is used instead the fact that there are these two competing approaches has generated a considerable literature some authors are concerned with the advantages and disadvantages of each while others deal with conditions under which the potentially different approaches would yield the same results or at least approximately so space does not

privatization risk taking and the communist firm this paper studies alternative methods of privatizing a formerly communist firm in the presence of imperfect risk markets the methods include cash sales a give away scheme and a participation contract where the government retains a sleeping fractional ownership in the firm it is shown that with competitive bidding the participation contract dominates cash sales because it generates both more private restructuring investment and a higher expected present value of revenue for the government under weak conditions the participation contract will induce more investment than the give away scheme and it may even share the cash sales virtue of incentive compatibility

wealth weather risk and the composition and profitability of agricultural investments despite the growing evidence that farmers in low income environments are risk averse there has been little empirical evidence on the importance of risk in shaping the actual allocation of production resources among farmers differentiated by wealth the authors use panel data on investments in rural india to examine how the composition of productive and nonproductive asset holdings varies across farmers with different levels of total wealth and across farmers facing different degrees of weather risk income variability is a prominent feature of the experience of rural agents in low income countries the authors report evidence based on measures of rainfall variability that the agricultural investment portfolio behavior of farmers in such settings reflects risk aversion due evidently to limitations on consumption soothing mechanisms such as crop insurance or credit markets the authors results suggest that uninsured weather risk is a significant cause of lower efficiency and lower average incomes a one standard deviation decrease in weather risk measured by the standard deviation of the timing of the rainy season would raise average profits by up to 35 percent among farmers in the lowest wealth quartile moreover rainfall variability induces a more unequal distribution of average incomes for a given distribution of wealth wealthier farmers are willing to absorb significant risk without giving up profits to reduce production risk smaller farmers have to invest their limited wealth in ways that reduce their exposure to risk at the cost of lower profit rates the authors found that at high levels of rainfall variability differences in rates of profit per unit of agricultural assets were similar across classes of wealth but over the sample range of rainfall variability these rates of profit were always higher for the poorer farmers than for the wealthier ones suggesting that the disadvantages of small farmers in risk diffusion are more than offset by their labor cost advantage

employment unemployment and the minimum wage a causality model some empirical work concerning the minimum wage tends to confirm the negative impacts of the law on employment but much of that work leaves the existence and size of the fiat s effects uncertain furthermore many of the theoretical and statistical advances of the past 1 decades have yet to be incorporated into the analysis of the law s effects we apply time series and causality testing analysis developed from the transfer function to the minimum wage employment unemployment series we find some evidence that the minimum wage has lowered the employment of white male teenagers age 16 19 and nonwhite males over the age of 20 however these impacts are small no other significant employment impacts are discovered and no significant unemployment impacts are found additional study of the law s impacts using advanced statistical methods is required

inflation and the distribution of price changes across markets a causal analysis recent advances in time series methodology are applied to the investigation of causal relationships between monthly changes in the consumer price index and changes in its dispersion across different consumption categories this dispersion is associated with the degree to which relative prices are changing past inflation rates seem useful in forecasting changes in relative prices but not vice versa there is also a significant contemporaneous correlation between these series hence it is concluded that fluctuations in the inflation rate help cause fluctuations in relative prices but not vice versa unless the entire effect occurs within a month the analysis also serves to illustrate a new way to implement the granger causality concept

optimal procurement strategies for online spot markets abstract spot markets have emerged for a broad range of commodities and companies have started to use them in addition to their traditional long term procurement contracts forward contracts in comparison to forward contracts spot markets offer products at essentially negligible lead time but typically command a higher expected price for this added flexibility while also exhibiting substantial price uncertainty in our research we analyze the resulting procurement challenge and quantify the benefits of using spot markets from a supply chain perspective we develop and solve mathematical models that determine the optimal order quantity to purchase via forward contracts and the optimal quantity to purchase via spot markets we analyze the most general situation where commodities can be both bought and sold via a spot market and derive closed form results for this case we compare the obtained results to the reference scenario of pure contract sourcing and we include results for situations where the use of spot markets is restricted to either buying or selling only our approaches can be used by decision makers to determine optimal procurement strategies based on key parameters such as demand and spot price volatilities correlation between demand and spot prices and risk aversion the results of our analysis demonstrate that significant profit improvements can be achieved if a moderate fraction of the commodity demand is procured via spot markets the results also show that companies who use spot markets can offer a higher expected service level but that they might experience a higher variability in profits than companies who do not use spot markets we illustrate our analytical results with numerical examples throughout the paper

international trade with forward futures markets under exchange rate and price uncertainty abstract the paper examines a risk averse firm s decisions on the level of trade when the exchange rate and the commodity price are uncertain and the extent of forward exchange and commodity futures commitments first we verify the separation theorem and the full double hedging theorem second we investigate the implications of the existence of both forward foreign exchange and commodity futures markets in comparison to the case where only one or no market is available to the firm the second exercise enables us to focus on conditions under which establishing forward futures arrangements promotes international trade

a theory of yardstick competition in the typical regulatory scheme a franchised monopoly has little incentive to reduce costs this article proposes a mechanism in which the price the regulatedfirm receives depends on the costs of identical firms in equilibrium each firm chooses a socially efficient level of cost reduction the mechanism generalizes to cover heterogeneous firms with observable differences medicare s prospective reimbursement of hospitals by using diagnostically related groups is a scheme very similar to the one outlined here

contract cheating the market in essays we conduct the first empirical economic investigation of the decision to cheat by university students we investigate student demand for essays using hypothetical discrete choice experiments in conjunction with consequential holt laury gambles to derive subjects risk preferences students stated willingness to participate in the essay market and their valuation of purchased essays vary with the characteristics of student and institutional environment risk preferring students those working in a non native language and those believing they will attain a lower grade are willing to pay more purchase likelihoods and essay valuations decline as the probability of detection and associated penalty increase

mean and variance responsive learning decision makers are often described as seeking higher expected payoffs and avoiding higher variance in payoffs we provide some necessary and some sufficient conditions for learning rules that assume the agent has little prior and feedback information about the environment to reflect such preferences we adopt the framework of borgers morales and sarin 2004 econometrica who provide similar results for learning rules that seek higher expected payoffs our analysis reveals that a concern for variance leads to quadratic transformations of payoffs to appear in the learning rule

risk taking in contests and the role of carrots and sticks i introduction when individuals compete for promotions bonuses or other rewards tied to their relative performance ranking vis a vis other contestants competition is likely to drive not just work effort but where imperfect monitoring permits other choices at the contestants discretion in this article we ask how rank dependent compensation influences attitudes toward risk or the choice of variance of output when contestants have opportunities to influence this aspect of their output distribution unlike previous literature we assume that it is costly for contestants to alter the variance of output and that identical contestants simultaneously choose both the mean of their output distribution i e work effort and its variance our analysis emphasizes the importance of the number of players and symmetry or lack thereof of payoffs on contestants incentives we find that contestants will engage in risk seeking increasing the variance of their output distribution in contests among three or more players when the payoff structure offers a greater prize for ranking first than the penalty for ranking last as happens in winner take all contests if the tournament organizer or sponsor values the aggregate output of the contestants as is typically assumed in labor market tournaments this risk seeking behavior is inefficient because it is costly but does not increase the expected output however we argue that many contests such as the research and development tournaments first modeled by taylor 1995 may be characterized by an organizer who cares only or primarily about the highest output achieved by a single contestant e g the best submission received in such cases the organizer may benefit from costly risk taking among contestants we show that three payoff levels a prize to the contestant ranked first a penalty to the contestant ranked last and a common intermediate payoff to all others are sufficient to achieve any combination of effort and variance of output that the organizer wishes to induce among contestants so long as the desired output variance does not exceed that which results from a winner take all prize structure therefore the sponsor s problem can be characterized as choosing the optimal mean and variance of the output distribution given the contestants costs of influencing the mean and variance of output in this way our model provides an explanation for the importance of both carrots prizes and sticks penalties in competitive settings only through the combined use of both can a contest organizer determine the effort and the variance of output chosen by contestants and doing so is necessary to achieve optimal performance from contests since the pioneering work of lazear and rosen 1981 nalebuff and stiglitz 1983 o keeffe viscusi and zeckhauser 1984 and others rank order tournaments or contests have been used to model incentives in a variety of economic settings in particular executive compensation has frequently been modeled as a tournament in which low level executives are motivated by the prospect of climbing the corporate ladder and obtaining the large salaries attendant to top ranking executives as in rosen 1986 and bognanno 2001 similarly the behavior of investment fund managers who compete for top fund rankings has been modeled as a tournament by brown harlow and starks 1996 taylor 1995 developed a model of research tournaments in which contestants search for an innovation and the best innovation submitted to the sponsor wins a prize the distinguishing feature of a tournament or contest is that contestants are paid based on the rank of their output relative to others rather than the level of output prize levels are set in advance and competition to win generates the incentive to exert effort to increase output lazear and rosen 1981 showed that rank order tournaments can provide an efficient incentive framework in a labor market setting when workers are risk neutral

road tax interactions among local governments a spatial panel data analysis of the french case over the period 1984 2000 abstractthis article contributes to the literature on local tax interactions its novelty lies in its focus on the interactions of local governments via an indirect local tax on vehicles such as th

effects of crop insurance premium subsidies on crop acreage crop insurance premium subsidies affect patterns of crop acreage for two reasons first holding insurance coverage constant premium subsidies directly increase expected profit which encourages more acreage of insured crops direct profit effect second premium subsidies encourage farms to increase crop insurance coverage with more insurance coverage farms obtain more subsidies and farm revenue becomes less variable as indemnities offset revenue shortfalls so acreage of insured crops likely increases indirect coverage effect by exploiting exogenous policy changes and using approximately 180 000 county crop year observations we estimate the sum of these two effects of premium subsidies on the pattern of u s acreage across seven major field crops we estimate that a 10 increase in the premium subsidy causes a 0 43 increase in the acreage of a crop in a county holding the premium subsidy of its competing crop constant taking into account the small share of premium subsidies in expected crop revenue this subsidy impact is analogous to an own subsidy acreage elasticity of 1 24 which exceeds own price acreage elasticity estimates in the literature one explanation for the larger acreage response to premium subsidies is that insurance causes an indirect coverage effect in addition to a direct profit effect

determining the impact of economic factors on local government growth policy using time series analysis and transfer function models being able to predict building activity is important to public administrators and planners it has been widely established that there is a significant relationship between economic financial factors and local government growth policy as measured by building activity this paper describes and analyses this relationship through the use of time series methodology monthly data for input variables unemployment rate and prime interest rate are related to output variables the monthly issuance of single family building permits commercial and industrial permits total permits and the estimated construction cost per single family permit using time series intervention and transfer function analysis through the use of transfer functions residential permit decisions commercial and industrial permit activity and total permits issued for all uses are causally related to levels of unemployment and the prime rate with varying periods of delay before impact is felt in growth policy decisions

decentralisation as an incentive scheme recent changes have introduced more decentralization in a number of traditionally centralized countries 1 in the case of france it is sometimes claimed that the 1982 1983 reform of subcentral government is of historical importance although the principles of that reform are not contested any more by the new majority elected in 1986 opinions still differ on a number of policy issues some of the issues are presented in this introductory section but the main purpose of this paper is not to expose or discuss in detail the problems of decentralization in france as argued in the second part of the introductory section the theoretical framework in which the policy issues of decentralization are usually discussed by economists is somewhat unsatisfactory in particular when applied to unitary states such as britain or france the bulk of the paper is devoted to the exploration of a different approach to decentralization it is not purported however that this approach could completely replace the more traditional one consequently when in the concluding section we return briefly to the policy issues identified here this is to be read as a preliminary attempt to evaluate the relevance of the reasoning developed in the paper

sufficient conditions for expected utility to imply drawdown based performance rankings the least restrictive sufficient condition for expected utility to imply sharpe ratio rankings is the location and scale ls condition see meyer 1987 the ls condition includes the normal and many other asymmetric and leptokurtic distributions commonly used in finance in this paper we argue that this condition is also sufficient for expected utility to imply drawdown based performance measure rankings because for investment funds satisfying the ls condition it does not matter whether funds are ranked with the sharpe ratio or with a drawdown based performance measure as the rankings are identical hence the same conditions that provide an expected utility foundation for the sharpe ratio also provide an expected utility foundation for drawdown based performance measures theoretically drawdown based performance measures are as good as the sharpe ratio

risk aversion and yield uncertainty in duality models of production a mean variance approach a duality model of production is developed that endogenizes stochastic output decisions under risk aversion the model incorporates both yield and price uncertainty and nonlinear mean variance risk preferences this permits modeling of the firm s expected output supply and input demand decisions under risk and also in principle the firm s output variance decisions the duality model is tractable for empirical research

indirect hedging of exchange rate risk abstract the purpose of this study is to investigate the impact of exchange rate risk upon export production when the firm cannot engage in a direct forward hedge in the exchange rate however there exists a forward market for a domestic financial asset correlated with the exchange rate in question exporting firms using such an indirect hedging device to reduce foreign exchange risk do not necessarily increase their output when such unbiased hedging market becomes available this contrasts with the well known result in the case of direct hedging

pigou tiebout property taxation and the underprovision of local public goods abstract pigou s proposition that the use of distorting taxes rather than neutral head taxes reduces public service levels is examined in this paper a simple model with a national system of competing local governments is utilized to demonstrate that the use of a distorting property tax on mobile capital decreases the level of residential public services the case where public services are an intermediate producer good is also considered

interactions between agricultural and resource policy the importance of attitudes toward risk using a method proposed by meyer for deriving comparative statics results in the presence of risk this paper analyzes the effects of various agricultural and environmental policy alternatives on the choices of a risk averse producer with a just and pope production function many commonly held beliefs about policy effects are not supported unambiguously by economic theory for example a tax on pesticides will not necessarily reduce pesticide use or average output and a reduction in price of agricultural output will not necessarily lead to a reduction in use of water or agricultural chemicals

mean variance vulnerability this paper transfers the concept of gollier and pratt s gollier c j w pratt 1996 risk vulnerability and the tempering effect of background risk econometrica64 1109 1123 risk vulnerability into mean variance preferences risk vulnerability is shown to be equivalent to the slope of the mean variance indifference curve being decreasing in mean and increasing in variance next we introduce the notion of mean variance vulnerability to link the concepts of decreasing absolute risk aversion risk vulnerability properness and standardness all of the abovementioned concepts are characterized in terms of mean variance indifference curve properties and in terms of absolute risk measures

mean variance preferences and investor behaviour we study the comparative statics implications of mean variance preferences for optimal portfolios specifically we show that all risk averse mean variance investors raise their investment in a risky asset in response to a change in that asset s return distribution if and only if the change lowers both the mean and standard deviation of the return by the same percentage besides being of interest in its own right our results allow us to compare some comparative statics implications and the expected utility and mean variance models systematically

the effects of politics on local tax setting evidence from france this paper investigates the hypothesis that local politics has an impact on local taxation in the french public sector by using a cross sectional dataset on departments in 1999 political variables are included in a tax setting equation to provide empirical evidence whether local governments in france adopt business taxation behaviour closer to the leviathan government hypothesis with higher tax rates when political competition decreases or to the partisan government hypothesis with differences in tax rates according to partisan variables it is shown that the wider the seat s margin the lower the tax rates and that this cut is weaker in the case of a left wing local majority than a right wing majority it is therefore concluded that the partisan government hypothesis is more supported by the french data than the leviathan one even after controlling for tax interdependencies between departments

does reducing the capital gains tax rate raise or lower investment abstract the effect of taxation of capital gains on the decision to purchase a risky asset is explored within a theoretical framework similar to that of the capital asset pricing model tax rate reductions have two offsetting effects one is to raise the after tax expected return while the other is to increase the amount of risk borne by private agents conditions for determining which effect dominates are derived

a decision theoretic foundation for reward to risk performance measures abstract in this paper we prove that partial moments based performance measures e g omega kappa upside potential ratio sortino satchell ratio farinelli tibiletti ratio value at risk based performance measures e g var ratio cvar ratio rachev ratio generalized rachev ratio and other admissible performance measures are a strictly increasing function in the sharpe ratio the theoretical basis of this result is the location and scale property and two other plausible and mild conditions our result provides a decision theoretic foundation for all these frequently used performance measures moreover it might explain the empirical finding that all these measures typically lead to very similar rankings

prudence and risk vulnerability in two moment decision models abstract prudence risk vulnerability temperance and some related concepts have recently been introduced into the expected utility framework of decision making under uncertainty we demonstrate how they can be meaningfully formulated in terms of two moment mean standard deviation preferences

are commercial fishers risk lovers fishers are risk averse according to most empirical studies while expected utility theory predicts risk neutrality even for sizable stakes we test this prediction using data from a stated choice experiment with swedish commercial fishers our results show that only 48 of the fishers can be broadly characterized as risk neutral while 26 are modestly risk averse and 26 are strongly riskaverse fishers are more risk neutral the higher the fraction of their household s income comes from fishing sensitivity testing implies that modest stake decisions like a few days of fishing are not influenced by wealth level

evaluating agricultural energy policies under uncertainty the case of electricity in south india abstract farmers attitude towards risk associated with the availability of energy inputs will influence their investment behavior and demand for energy inputs in order to analyze policies that reduce the risk in energy availability some modifications in methods are required this study using a mean variance framework demonstrates how cross sectional data and time series data on crop yields and prices can be used to analyze agricultural energy policies under uncertainty in a developing country context it is argued that the farmers risk attitudes their crop allocation behavior changes in the demand for energy inputs and the stochastic relationship between various forms of energy inputs can be explained by the various energy constraints faced by them furthermore using the same methods the impact of policies which affect these constraints can be analyzed

exchange rate variability and the level of international trade abstract theoretical research has shown that under reasonable assumptions exchange rate variability ought to depress the level of trade this paper builds a theoretical model designed to exaggerate the negative effect of exchange rate variability on trade in order to calibrate an upper bound to the potential size of this effect numerical analysis demonstrates that exchange rate variability of the magnitude currently observed among industrial countries has an insignificant effect on the level of trade this result is robust with respect to a wide range of parameter values and with respect to reasonable extensions of the model

the impact of exchange rate volatility on international trade flows despite the best efforts of economists a basic paradox as to the impact of exchange rate volatility on trade flows remains unresolved at both the theoretical and empirical level this paper surveys the vast literature in the area in an attempt to identify major issues which have contributed to the development of the debate and examine whether any general direction for consensus may be found

efficient gradualism in intertemporal portfolios abstract this paper examines intertemporal portfolio plans under autocorrelation in asset returns and considers whether these plans conform to the common advice that risky assets be bought gradually and then held in decreasing amounts as the investment horizon approaches given elliptical returns optimal portfolio plans with precommitment must be mean variance efficient then for arma 1 1 parameterizations with negative autocorrelation the age effect gradual diminishing of risky holdings as the horizon approaches is confirmed as is dollar cost averaging gradual entry into the risky asset for sufficiently distant horizons for a numerically analyzed alternative bivariate returns process only the age effect is confirmed

identifying strategic interactions in swedish local income tax policies abstract this paper uses data on swedish local governments to test for strategic interaction in local tax setting we make use of a number of indirect predictions from the theories of tax competition and yardstick competition in order to test for the presence of strategic interaction in these forms using such additional predictions of the theories serves a twofold purpose first it helps us establish if the spatial coefficient is due to strategic interactions or merely reflecting spatial error correlation and second it helps identify the source of interaction the analysis provides strong evidence for spatial correlation in tax rates among swedish local governments moreover we find weak evidence of tax competition effects in the setting of tax rates

tax competition among local governments evidence from a property tax reform in finland this paper uses a finnish policy intervention to study tax competition among local governments changes in the statutory lower limits to the property tax rates are used as a source of exogenous variation to estimate the responses of municipalities to tax rates in their neighboring municipalities i do not find evidence of interdependence in property tax rates among finnish municipalities the results are in contrast to the earlier empirical literature using data from other countries that has mainly found positive interdependence in tax rates i compare the causal estimates based on the policy change to the commonly used spatial lag estimates and spatial instrumental variables estimates which are based on highly restrictive assumptions the comparisons suggest that the standard spatial econometrics methods may have a tendency to overestimate the degree of interdependence in tax rates

late stage pharmaceutical r d and pricing policies under two stage regulation 2016 elsevier b v we present a model combining the two regulatory stages relevant to the approval of a new health technology the authorisation of its commercialisation and the insurer s decision about whether to reimburse its cost we show that the degree of uncertainty concerning the true value of the insurer s maximum willingness to pay for a unit increase in effectiveness has a non monotonic impact on the optimal price of the innovation the firm s expected profit and the optimal sample size of the clinical trial a key result is that there exists a range of values of the uncertainty parameter over which a reduction in uncertainty benefits the firm the insurer and patients we consider how different policy parameters may be used as incentive mechanisms and the incentives to invest in r d for marginal projects such as those targeting rare diseases the model is calibrated using data on a new treatment for cystic fibrosis

exchange rate variability and trade why is it so difficult to find any empirical relationship this paper discusses why previous literature has found little evidence of any effect of exchange rate variability on international trade methodological and statistical issues are discussed in particular comparisons are made of estimations based on different specifications or using different data sets and changes in the results depending on the method used are shown