informational efficiency of markets for stumpage this paper examines the weak form informational efficiency of markets for pine sawtimber stumpage in the u s south analyses of annual and quarterly rates of price change generally indicate that stumpage markets are efficient when viewed over monthly intervals stumpage markets do not pass the tests for weak form efficiency this failure is attributed to friction in the market due to the time and cost involved in consumating timber sales the results have implications for price responsive timber harvest scheduling for the application of asset pricing models to forestry investments and for policies governing sales of timber from public lands

estimating risk aversion coefficients for dry land wheat irrigated corn and dairy producers in kansas the risk attitudes of dry land wheat irrigated corn and dairy producers in kansas are examined using the nonlinear mean standard deviation approach results of analyses indicated that dryland wheat and dairy producers are characterized by increasing absolute and increasing relative risk aversion while irrigated corn producers are characterized by constant absolute and increasing relative risk aversion both crop enterprises exhibited constant returns to scale technology while the dairy enterprise exhibited decreasing returns to scale gross farm income was significant and positively related to relative risk aversion

assessing the financial performance of forestry related investment vehicles capital asset pricing model vs arbitrage pricing theory capital asset pricing model capm and arbitrage pricing theory apt are used to assess the financial performance of eight forestry related investment vehicles although results from apt support previous findings from capm about timberland investments three bodies of evidence show that apt findings are more robust the major conclusions are a institutional timberland investments and timberland limited partnerships have a low risk level and excess returns b forestry industry companies have not earned risk adjusted returns and the performance of medium forest industry firms is worse than that of large firms c stumpage price does not resemble the return generation process of timberland investments and d lumber futures have little excess return copyright 2001 oxford university press

the arbitrage pricing model and returns on assets under uncertain inflation the impact of inflation on equilibrium returns in capital markets has been the subject of several articles in recent years chen and boness 1 friend landskroner and losq 4 long 7 and roll 13 have all constructed general equilibrium models which incorporate the impact of uncertain inflation on returns all of these authors have derived models in a mean variance world utilizing methodologies similar to that first utilized by mossin 9 or merton 8 the basic underlying tenet of mean variance analysis is that for any given level of expected return investors wish to minimize the variance of return in mean variance equilibrium models the only risk that cannot be diversified away is the covariance of an asset s return with the market return assets which have the same covariance with the market have the same equilibrium required return thus in a mean variance world if each member of the following pairs of assets had the same covariance with the market each member would have the same expected return a a stock which was a perfect hedge against inflation versus one which was not b a stock which was a perfect hedge against oil price changes versus one which was not c a security that hedged against interest rate changes versus one which did not in this article we break out of the limitations of the mean variance assumptions by utilizing the arbitrage pricing theory apt of ross 15 16 17 this

potential pitfalls for the purchasing power parity puzzle sampling and specification biases in mean reversion tests of the law of one price the ppp puzzle is based on empirical evidence that international price differences for individual goods loop or baskets of goods ppp appear highly persistent or even nonstationary the present consensus is these price differences have a half life that is of the order of five years at best and infinity at worst this seems unreasonable in a world where transportation and transaction costs appear so low as to encourage arbitrage and the convergence of price gaps over much shorter horizons typically days or weeks however current empirics rely on a particular choice of methodology involving i relatively low frequency monthly quarterly or annual data and ii a linear model specification in fact these methodological choices are not innocent and they can be shown to bias analysis towards findings of slow convergence and a random walk intuitively if we suspect that the actual adjustment horizon is of the order of days then monthly and annual data cannot be expected to reveal it if we suspect arbitrage costs are high enough to produce a substantial band of inaction then a linear model will fail to support convergence if the process spends considerable time random walking in that band thus when testing for ppp or loop model specification and data sampling should not proceed without consideration of the actual institutional context and logistical framework of markets

portfolio risk and returns from timber asset investments this paper evaluates the investment performance of swedish timberland during the last three decades using the capital asset pricing model capm results suggests that swedish timberland investments show diversification potential and can serve as a hedge

consequences of the clean water act and the demand for water quality since the 1972 u s clean water act government and industry have invested over 1 trillion to abate water pollution or 100 per person year over half of u s stream and river miles however still violate pollution standards we use the most comprehensive set of files ever compiled on water pollution and its determinants including 50 million pollution readings from 240 000 monitoring sites and a network model of all u s rivers to study water pollution s trends causes and welfare consequences we have three main findings first water pollution concentrations have fallen substantially between 1972 and 2001 for example the share of waters safe for fishing grew by 12 percentage points second the clean water act s grants to municipal wastewater treatment plants which account for 650 billion in expenditure caused some of these declines through these grants it cost around 1 5 million 2014 dollars to make one river mile fishable for a year we find little displacement of municipal expenditure due to a federal grant third the grants estimated effects on housing values are smaller than the grants costs we carefully discuss welfare implications

estimating gamma for tail hedge discount rates when project returns are cointegrated with gdp martin weitzman has suggested a method for calculating social discount rates for long term investments when project returns are covariant with consumption or other macroeconomic variables so calle

assessing the investment performance of swedish timberland a capital asset pricing model approach this paper evaluates the investment performance of swedish timberland during the last three decades using the capital asset pricing model capm results suggests that swedish timberland investments show diversification potential and can serve as a hedge against inflation furthermore the analysis suggests that the return on timberland is higher than on investment alternatives in the same risk class the results are in line with similar studies performed in other countries

a simple competitive model with production and storage we study a rational expectations partial equilibrium model of a market for a single storable commodity whose output each period is a function of previous period effort on production and a realization of a shock that affects equally all producers i he final demand is non random and depends only on each period s price risk neutral producers make production and storage decisions based on forecasts of future price distributions existence of equilibrium is proved and for the case of i i d shocks several comparative statics results are established as well as the existence and stability of a unique stationary distribution and whose output at each period is a multiplicative function of previous period s planting and of the realization of a shock that affects equally all producers the final demand for this good is non random and depends only on this period s price this describes approximately markets for agricultural products which are not traded internationally and where most of the price uncertainty stems from supply shocks risk neutral producers make their decisions based on forecasts of future price distributions and of known cost functions of storage and production to maximize their discounted profits in order to close the model an assumption on how such price forecasts are made is needed we assume that agents make equilibrium forecasts i e that their forecast is common and that when producers act taking the forecasted prices as given they make decisions that yield the forecasted prices as equilibrium prices this is of course what has been sometimes called rational expectations the assumption of equilibrium expectations and the presence of risk neutral pro ducers will imply that the equilibrium variables may be obtained by considering a related market surplus maximization problem 1 this places strong restriction on the stochastic process of equilibrium prices for the case where the basic shocks are assumed to be independently and identically distributed over time one may thus show that equilibrium prices are a function of a certain state variable the total stocks kept from last period plus this period s output and this allows us to derive properties of equilibrium solutions our main results concerning this case are a storage is a non increasing function of price and expected production a non decreasing one b the elasticity of expected future prices with respect to today s prices is positive and less than one c this elasticity is non constant being zero for high enough prices d the price process follows a renewal process if prices are low

testing expected utility maximization under price and quantity risk with a heterogeneous panel refutable implications based on the curvature properties of the indirect utility function for the competitive firm operating under uncertainty are extended to the case of both price and quantity uncertainty using unit roots and cointegration tests for heterogeneous panels a model of us agricultural production is developed based on the time series properties of a panel of state level data most refutable hypotheses under output price and output quantity risk are not rejected but symmetry conditions implied by a twice continuously differentiable indirect utility function are rejected the same test conclusions are obtained from a traditional model that presumes stationarity in all variables

production risk risk aversion and the determination of risk attitudes among spanish rice producers agricultural production is subject to risk and the attitudes of producers toward risk will influence input choices insofar as these affect production risk risk attitudes in turn may be affected by certain socioeconomic characteristics of producers using 2004 survey data from a cross section of 130 spanish rice farms we estimate risk aversion coefficients of farmers and investigate the influence of a series of socioeconomic variables on their risk attitudes our results show that farmers exhibit risk averse behavior and that risk attitudes are related to a series of socioeconomic characteristics in particular the belief that the farm will continue after the producer retires is found to increase the degree of risk aversion while age is found to have nonlinear effects on risk aversion off farm income especially from nonagricultural activities is found to reduce risk aversion neither the educational level of the producer nor the presence of dependents on the household is found to have an effect on risk preferences regarding the production technology we find that land labor and fitosanitary products are risk reducing inputs whereas capital seeds and fertilizer all increase risk

to harvest or not to harvest an analysis of cutting behavior on federal timber sales contracts economists have studied the environmental consequences and competitiveness of alternative sales techniques for publicly owned na tural resources little attention has been paid however to fluctuat ions in revenues resulting from the option nature of public resourc e sales this paper analyzes how the contract structure of public res ource sales leads to defaults and thereby revenue instability data on u s forest service timber sales contracts which were modified i n the early 1980s in response to default problems suggest that reduc ed contract lengths and more stringent requirements for extensions in crease harvest rates but that price adjustment clauses are unlikely to have similar effects copyright 1988 by mit press

an investigation of the harvest decision of timber firms in the south east united states in the forestry literature stochastic extensions of the classic faustmann model have become the predominant models of optimal harvesting on even aged timber stands a recent attempt to estimate a stochastic version of the faustmann model left several puzzling results unexplained provencher 1995 this paper reports on new estimation and analyses undertaken to resolve these puzzles of particular note is the result that the value of using correct price forecasts in the harvest decision is much lower than indicated by recent simulation studies perhaps because variability in convenience yield dampens the expected gain from exploiting stochastic variation in timber prices

on the efficiency of the markets for gold and silver gold and silver have wide ranging utility from their use in art and jewelry to their use in the production of electronic equipment the holding of gold and silver has always been considered a great treasure within the last decade a new use has developed for these metals individual investors and portfolio managers have recently begun to view them as possible investment assets this paper examines the workings of the gold and silver markets from the investor s point of view the prices of goods are important in their allocation among competing uses and the same is true for gold and silver investors use the prices of the metals in making buy and sell decisions however the price changes for gold and silver permit these markets to be analyzed current theory maintains that market determined changes in price of investment assets result from a changing set of information and that given a competitive market system the price changes tend to move the markets toward equilibrium this is the essence of the efficient markets theory the purpose of this paper is to analyze the price changes for gold and silver to establish if the efficient markets theory can be applied to the markets for these metals this paper is divided into four sections and a conclusion the relationship between the gold and silver markets and market efficiency is ex

markets in china and europe on the eve of the industrial revolution prevailing views suggest the industrial revolution began in europe because markets had gradually become more efficient and by the 18th century the scope of economic activity was far larger than in other parts of the world this paper compares the actual performance of markets in europe and china two regions of the world that were relatively advanced in the pre industrial period but would start to industrialize about 150 years apart the analysis covers economies that account for about two fifths of the world s population in the mid 18th century and it considers some three centuries of data our findings suggest that relative levels of market function in china and europe were similar prior to the industrial revolution higher efficiency in europe is seen only in the nineteenth century when industrialization was already underway moreover these improvements occurred in a dramatic and sudden fashion further casting doubt on an evolutionary view of market development rather than being a key condition for subsequent growth gains in efficiency appeared simultaneously with the turning point of modern growth we discuss the implications of these findings for a number of explanations for long run growth and the industrial revolution

sell low and buy high arbitrage and local price effects in kenyan markets large and regular seasonal price fluctuations in local grain markets appear to offer african farmers substantial intertemporal arbitrage opportunities but these opportunities remain largely unexploited small scale farmers are commonly observed to sell low and buy high rather than the reverse in a field experiment in kenya we show that credit market imperfections limit farmers abilities to move grain intertemporally providing timely access to credit allows farmers to buy at lower prices and sell at higher prices increasing farm revenues and generating a return on investment of 29 to understand general equilibrium ge effects of these changes in behavior we vary the density of loan offers across locations we document significant effects of the credit intervention on seasonal price fluctuations in local grain markets and show that these ge effects shape individual level profitability estimates in contrast to existing experimental work the results indicate a setting in which microcredit can improve firm profitability and suggest that ge effects can substantially shape microcredit s effectiveness in particular failure to consider these ge effects could lead to underestimates of the social welfare benefits of microcredit interventions

efficiency of the market for residential real estate efficiency of securities markets research addressing the efficiency of the real estate market is limited the perception is widely held that such markets may not be efficient in a recent empirical study using some of the same data employed in our analysis hamilton and schwab 1985 conclude that expected appreciation rates in residential real estate markets are systematically biased by the failure of market participants to incorporate past appreciation rates into their expectations their analysis however is exclusively based on the 1974 1976 period to project appreciation rates for the 1976 1979 period as we demonstrate below their analysis though it implies systematic estimation errors ex post for the time period they study does not generalize to other periods thus their finding is not a sufficient basis for concluding that the market is not efficient ex ante

joint estimation of risk preferences and technology flexible utility or futility a thought experiment is designed to investigate whether the structure of risk aversion i e the changes in absolute or relative risk aversion associated with changes in wealth can be estimated with reasonable precision from agricultural production data findings strongly suggest that typical production data are unlikely to allow identification of the structure of risk aversion a flexible utility parameterization is found to slightly worsen technology parameter estimates results also indicate that even under a restricted utility specification utility parameter estimates are biased further their quality is much worse when shocks are not large or samples are small

do forest assets hedge inflation forest assets are commonly viewed as good hedges against inflation the view is based largely however on anecdotal evidence rather than empirical analysis this paper examines the historical relationship between forestry returns and inflation the results suggest that forests in the u s west and south have been superior hedges against higher than anticipated inflation forests in the northeast have been less effective inflation hedges the results also indicate that western and southern forests have been overvalued during periods of relatively high expected inflation markets for forests in the northeast however have been relatively efficient processors of inflation expectations

a test of the hotelling rule using old growth timber data the paper tests hotelling s prediction that scarcity rent for a non renewable resource will rise at the rate of discount in a market equilibrium we perform the test using data for old growth timber a resource that is effectively non renewable in contrast to previous studies for this resource a measure of scarcity rent is directly observable in the form of stumpage price bids in timber auctions we construct a model that allows for replanting and captures the institutional framework of the western u s timber market the modified hotelling rule that we derive is not rejected in several of our specifications

risk analysis with single index portfolio models an application to farm planning sharpe s 1963 single index portfolio model the separation theorem and a solution method suggested by elton gruber and padberg are adapted in this paper to the farm diversification problem the objectives are to develop risk measures based on single index parameters and computationally simple methods for farm risk planning that are suitable for microcomputers and modern hand held calculators the intent is to produce a normative model with possible extension applications

on the use of period average stumpage prices to estimate forest asset pricing models several recent papers thomson 1987 zinkhan 1988 zinkhan and mitchell 1988 cubbage harris and redmond 1988 binkley and washburn 1988a 1988b including one in this journal redmond and cubbage 1988 use either sharpe s 1963 single index market model with returns to the overall market portfolio serving as the index or the capital asset pricing model capm sharpe 1964 lintner 1965 to measure the risk and evaluate the performance of timberland investments the capm specifies an equilibrium relationship between asset i s expected rate of return eri the risk free rate of return rf and the expected risk premium on the market portfolio of all assets in the economy the expected market rate of return erm minus the risk free rate rf

timber harvesting as a part of the portfolio management a multiperiod stochastic optimisation approach a multiperiod stochastic optimization model is formulated for a land owner who can speculate between investing harvesting income in financial assets and postponing harvesting this paper demonstrates the benefits from using a multiperiod model the effects of cointegration on optimal portfolio and the differences between the timber harvesting model and the standard financial portfolio optimisation model the demonstrations are made partly by using a real finnish forest and price data and partly by using artificial data in the real data example the system is demonstrated using a case where it is assumed that the land owner has several mature forest stands which can be harvested at any time during the next 3 years investment alternatives are stocks government bonds and bank deposits the forestry returns were defined as a sum of exponential physical growth and stumpage price return the chosen definition of forestry returns makes the model very useful for example when speculating on what speed of physical growth is needed to make forestry a competitive investment alternative when both returns and risks are considered

transport costs and the geography of arbitrage in eighteenth century china trade has been considered a condition for growth and development a view that might have merits in explaining the rise of the western world i use a new data set from archival sources of eighteenth century china to revisit this question this analysis suggests previous studies of market integration which attribute much growth to a reduction in transport costs have overestimated these effects ifind the overall level of market integration in china was higher than previously thought and intertemporal effects are important substitutes for trade both factors reduce the importance of trade as a unique explanation for subsequent growth jel 013 018 r1l n25

entropy structure and organisational change abstract the paper sets out a basis for rigorous thermodynamic characterisation of structural change and of organisational interdependencies between economic and environmental processes many attempts have been made to exploit entropy as a generic explanatory variable it has widely been proposed that entropy is a measure of the level of dis order of a system of how mixed up things are then as organisation is often thought synonymous with some notion of order it has been a small step to propose that increasing organisation is the converse of increasing entropy another suggestion has been that social system structure and change can be explained in terms of a tendency towards maximum entropy production the lotka principle of maximum energy dissipation all these notions must be rejected the putative entropy order connection has its inspiration in boltzmann s probabilistic interpretation of thermodynamic entropy as a measure of microscopic disorder this order principle is simply not applicable under conditions far from thermodynamic equilibrium prigogine conditions which prevail for all important economic and ecological processes under such conditions the relationship between entropy production and changes in structure or organisation is multi faceted and situation specific attempts to account for the specificity of societal activities in terms of a generic scalar measure of organisation or dissipation are largely after the fact and in no way do away with the need for analysis of institutional and ethical dimensions of human action in their own right when properly allied to institutional analysis however the far from equilibrium thermodynamics furnishes a rich impetus for a coevolutionary perspective in ecological economics with promise of incisive treatments of in particular issues of system environment codependency and of the time in determinacies of economy environmental change

short term interest rates as predictors of inflation on testing the hypothesis that the real rate of interest is constant in an innovative and provocative paper in this review eugene fama presents evidence which appears to be consistent with the joint hypothesis that the real rate of interest ignoring taxes is a constant and that the market for u s treasury bills is efficient in the sense of embodying rational expectations those findings are strikingly at variance with a long list of previous studies which seemed to support the view that the real rate of interest varies over time and can be related to economic variables such as real output monetary policy and so forth 2 the methodologies which lead to these contradictory conclusions are quite different previous studies had followed the lead of irving fisher by relating nominal interest rates to distributed lags on past rates of inflation 3 these distributed lags are generally interpreted as approximations to the market s expected rate of inflation and thus any remaining variation is attributed to variation in the real rate 4 fama s methodology on the other hand draws on the fact that the difference between the market interest rate and the subsequently observed rate of inflation the ex post real interest rate consists by definition of the ex ante real interest rate plus a pure forecasting error 5 the hypothesis of market efficiency implies that these forecasting errors must be serially random thus observing ex post real rates is equivalent to observing ex ante real rates with random measurement error these errors of course confound the problem of identifying variation in the ex ante real rate in this paper we will argue that the relative magnitude of these measurement errors is such that the tests carried out by fama were not powerful enough to reject the joint hypothesis that the ex ante real rate is a constant and expectations are rational more powerful tests which are presented in this paper using the same data do lead to rejection of that hypothesis of course rejection

informational efficiency of markets for stumpage reply we appreciate the opportunity to reply to hultkrantz s comment on our analysis of the informational efficiency of markets for pine sawtimber stumpage in the u s south washburn and binkley the efficiency or inefficiency of stumpage markets does indeed have important implications for forest management decisions and we are pleased by hultkrantz s interest in the subject his comment makes many valid points and furthers the debate on stumpage market efficiency there are however some issues raised by hultkrantz that require discussion clarification or correction our reply proceeds in five stages first we clarify the meaning of stumpage market efficiency and illustrate its consequences for the time series behavior of stumpage prices and for the profitability of priceresponsive timber harvesting strategies second we argue that the price elasticity of aggregate timber supply has little relevance to the question of stumpage market efficiency third we show that hultkrantz s analysis of the stationarity of southern pine stumpage prices and our analysis of the serial relationship between departures from equilibrium rates of stumpage price change are simply alternative means of testing the hypothesis that stumpage markets are weak form efficient fourth we argue that hultkrantz s results are largely consistent with those presented in washburn and binkley finally we interpret the results of tests of stumpage market efficiency to date and suggest a path forward