willingness to pay for stochastic improvements of future risk under different risk aversion abstract within a general intertemporal decision making framework this work shows one individual with more k th degree k 2 n ross risk aversion always chooses more current paying to improve his future payoff distribution when such stochastic improvement satisfies the n th degree mean preserving stochastic dominance moreover when stochastic improvement of the future payoff distribution is not mean preserving the notions of linearly quadratically restricted more ross risk aversion proposed by eeckhoudt liu and meyer 2017 can help provide a clear cut comparative statics analysis

optimal self protection in two periods on the role of endogenous saving self protection is a costly investment to reduce the probability of loss this paper studies optimal self protection in a two period model with endogenous saving in a setting with a binary loss we show that prudence is negatively associated with the optimal level of self protection consistent with results obtained in single period models we provide intuition for this finding with the help of a recent approach based on stochastic dominance furthermore we determine the effect of interest rate risk on optimal self protection and study a model in which a decision maker engages in advance effort to increase the probability of facing a better risky situation all our results suggest that the understanding of advance self protection crucially hinges on whether the decision maker also uses saving to optimize intertemporal consumption utility if so the fact that self protection expenditures are upfront turns out to be irrelevant

transaction costs and international portfolio diversification abstract this paper employs an intertemporal portfolio choice model that incorporates proportional transaction costs to examine two features of portfolio allocation the domestic bias of equity holdings and the relationship between domestic and international turnover rates the model implies that the rate of portfolio diversification decreases as the magnitude of the transaction costs increases as costs increase active portfolio reallocation decreases and is replaced by passive portfolio reallocation which is costless and is accomplished through the realization of capital gains the international turnover rate is greater than the domestic turnover rate because the average holdings of the international asset are small not because the volume of trading is large

risk and precautionary saving in two person households the existing literature on precautionary saving is based almost entirely on the assumption that the household acts as if it consisted of a single individual decision taker in reality saving decisions are typically taken by two person households this paper examines the implications of this observation for the existence of precautionary saving and shows that the assumption that the individual utility functions satisfy the conditions for precautionary saving to exist can imply that the household exhibits precautionary saving but only under strong assumptions on the type of risk change being considered

another look at the role of the industrial structure of markets for international diversification strategies abstract this paper re examines the extent to which gains from international diversification are due to differences in industrial structure across countries recent papers by roll 1992 journal of finance 47 3 42 and heston and rouwenhorst 1994 journal of financial economics 36 3 27 investigate this issue and find conflicting evidence using a new database the dow jones world stock index with coverage in 25 countries and over 66 industry classifications we decompose comprehensively both country and industrial sources of variation we confirm that little of the variation in country index returns can be explained by their industrial composition we also uncover differences in the proportion of variation in industry index returns that is captured by country and industry factors and discuss the implications for global diversification strategies

credit rationing or entrepreneurial risk aversion a comment cressy 2000 argues that the positive correlation between assets and the rate of business startups is due to dara preferences we show however that the required property is prudence and prudence is consistent with dara iara or cara

the effectiveness of international diversification whole markets versus sectors a hedging approach is used to examine the effect of sectoral factors on the effectiveness of international diversification by using data covering seven countries and various sectors we find that international diversification is more effective when assets from developed markets only are used and when multiasset portfolios are used instead two asset portfolios the results also reveal that international diversification across whole markets is more effective than diversification across sectors these results reflect the pattern of return correlation

international portfolio nondiversification and exchange rate variability abstract incomplete international portfolio diversification is implied by an equilibrium models of exchange rates with nontraded goods the model can also explain the greater correlation between consumption and income within a country than between consumption across countries nontraded goods make more stringent the elasticity conditions required to explain exchange rate variability resulting from current productivity disturbances though not from disturbances to fiscal policies or the prospective return to investment the model is also consistent with international real interest rate differentials changes over time in the current account and relative wealth across nations and observed time series properties of exchange rates

barriers to participation of the poor in south africa s land redistribution abstract land redistribution is being characterized as poverty alleviation for rural south africa this paper argues that the poor have less inclination to move the distances demanded by the redistribution have less labor available for farming are less able to afford the program s up front costs have fewer farming specific skills and have less capacity to cope with agricultural risk therefore the poor are likely to be rationed out of participation in the program and the land redistribution will have little effect on rural poverty unless demand led targeting is dropped and ancillary programs are employed to make land redistribution attractive for the poor

home bias in equity portfolios inflation hedging and international capital market equilibrium we test whether the home bias in equity portfolios is caused by investors trying to hedge inflation risk the empirical evidence is consistent with this motive only if investors have very high levels of risk tolerance and equity returns are negatively correlated with domestic inflation we then develop a model of international portfolio choice and equity market equilibrium that integrates inflation risk and deadweight costs using this model we estimate the levels of costs required to generate the observed home bias in portfolios consistent with different levels of risk aversion for a level of risk aversion consistent with standard estimates of the domestic equity market risk premium these costs are about a few percent per annum greater than observable costs such as withholding taxes thus the home bias cannot be explained by either inflation hedging or direct observable costs of international investment unless investors have very low levels of risk aversion article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

international competition and exchange rate shocks a cross country industry analysis of stock returns this article systematically examines the importance of exchange rate movements and industry competition for stock returns common shocks to industries across countries are more important than competitive shocks due to changes in exchange rates weekly exchange rate shocks explain almost nothing of the relative performance of industries using returns measured over longer horizons the importance of exchange rate shocks increases slightly and the importance of industry common shocks increases more substantially both industry and exchange rate shocks are more important for industries that produce internationally traded goods but the importance of these shocks is economically small for these industries as well economists journalists and politicians around the world argue that some of the industries in their country compete vigorously with the same industries in other countries and that exchange rate shocks affect their competitiveness in the united states it is routinely stated that some u s industries compete with japanese industries and that a depreciation of the yen is bad for these u s industries and good for the rival japanese industries if the yen falls trade tensions could intensify between the u s and japan as autos and machinery from japan gain a competitive edge 1 further the exchange rate literature shows that exchange rate shocks lead to persistent deviations from purchasing power parity 2 froot and klemperer 1989 and knetter 1989 1993 among others demonstrate that deviations from purchasing power parity lead to sharp changes in price markups and profit margins for exporters

ranking contingent monitoring systems this paper seeks to provide a ranking of information systems in a setting of contingent monitoring control strategies that make the acquisition of additional information conditional on observing certain outcomes largely elude the existing ranking criteria we show that this happens because contingent monitoring involves more than the classical trade off between risk sharing and incentives it also requires a balancing of incentives and downside risk we then develop a refinement of the most common information system orderings that conveys this feature this allows us to reinterpret and generalize some of the literature s key results concerning for instance auditing policies with independent or with correlated signals and monitoring systems where the precision of an added signal is endogenous

on the productive value of biodiversity the paper investigates the value of biodiversity as it relates to the productive value of services provided by an ecosystem the value of biodiversity is linked with a deterioration in the functioning of the ecosystem the analysis examines how the value of an ecosystem can be greater than the sum of its parts first we propose a general measure of the productive value of biodiversity the measure involves an experiment that divides the ecosystem into sub systems that are less diverse keeping aggregate resources constant second the value of biodiversity is decomposed into four components reflecting the role of complementarity scale convexity and catalytic effects this provides new and useful information on the sources determinants and dynamics of biodiversity value

skewness preference risk aversion and the precedence relations on stochastic changes this paper provides a general choice theoretic characterization of the trade off between risk and skewness whose importance in understanding risk taking behavior is well documented in empirical studies the condition under which the prudence measure kimball 1990 characterizes the strength of an individual s downside risk aversion against his own risk aversion is identified and interpreted in a unifying framework based on the concept of one stochastic dominant change preceding another and that of the desirability of a stochastic change the framework is also shown to be useful for a better understanding of the arrow pratt measure the stronger ross measure and the coincidence of the characterizations of downside risk aversion and prudence as well as the relationship between stochastic dominances of different degrees

tailored to the extremes quantile regression for index based insurance contract design a new approach for weather index based insurance design based on quantile regression qr to condition the yield index dependency is developed and compared to standard regression technique three conceptual different risk measures i e expected utility expected shortfall and a spectral risk measure are used to evaluate the risk reducing properties of these contracts our findings show that qr is much more powerful in establishing the yield index dependency and lead for all risk measures to a higher risk reduction than the standard technique ordinary least squares ols thus qr leads to a more efficient contract design which is beneficial for both the insurer smaller remaining risk and the insured higher demand and willingness to pay our empirical application is based on a 31 years long time series of wheat yield data from northern kazakhstan

political biases in lobbying under asymmetric information this paper introduces asymmetric information in a pluralistic model of interest groups competition and analyzes its impact on policy biases lobbying groups are uninformed on a decision maker s preferences and use nonlinear contributions not only to compete for the agent s services but also to learn about his preferences in an otherwise standard common agency model of lobbying asymmetric information can be either on the decision maker s ideal point horizontal differentiation or on the strength of his own preferences for ideology vertical differentiation at equilibrium asymmetric information redistributes bargaining powers between interest groups and the decision maker in non trivial ways that may depend on the kind of informational asymmetry which is postulated asymmetric information tends to mitigate the influence of interest groups and contributions might be significantly reduced interest groups no longer contribute for a change in policy what it is worth to them as under complete information contributions incorporate a discount related to the group s ability to solve the asymmetric information problem jel d72 d82

alternative approaches to comparative nth degree risk aversion this paper extends the three main approaches to comparative risk aversion the risk premium approach and the probability premium approach of pratt 1964 risk aversion in the small and in the large

wage and labor supply effects of illness in cote d ivoire and ghana instrumental variable estimates for days disabled abstract sickness should make individuals less productive but there are problems in measuring this effect first how is adult morbidity measured in a household survey second how is the impact or morbidity on productivity inferred if earning is partly used to improve health self reported functional activity limitation due to illness is considered an indicator of morbidity for wage earners and self employed people to deal with both the measurement and joint determination problems an instrumental variable estimation approach is used where local food prices and health services instrument for disability days that reduce wages by at least 10 and hours by 3 or more

risk efficiency and the adoption of modern crop varieties evidence from the philippines efficiency among farmers of less developed countries has been the focus of numerous studies since t w schultz hypothesized that farmers in developing agricultures are poor but efficient 1 a growing body of literature supports schultz s argument that farmers in developing agricultures have low incomes not because they use their resources inefficiently but because they lack the technology and resources they need to realize higher productivity and thus higher incomes a high priority in agricultural development assistance since the 1960s has been the generation of technology that would enable farmers to increase their productivity much research has been devoted to the causes of low agricultural productivity and the longer term productivity gains that may be forthcoming from modern technology but less attention has been devoted to the process of technology adoption by low income farmers as noted in the recent survey of adoption of agricultural innovations by g feder r e just and d zilberman there have been efforts to model adoption in the context of risk but there is a dearth of empirical evidence on the ways that farmers respond over time as a new production technology is introduced in a risky environment 2 in this article we address the empirical analysis of technical efficiency as farmers adopt new production technology taking into account production risk and learning we utilize recently developed efficiency criteria applicable when production is risky and implement these criteria using an approximation to a representative farmer s decision model 3 pooled time series and cross sectional data collected by the international rice research institute are used to investigate the

priority setting in health care and higher order degree change in risk this paper examines how priority setting in health care expenditures is influenced by the presence of uncertainty about the severity of the illness and the effectiveness of medical treatment we provide necessary and sufficient conditions on social preferences under which a social planner will allocate more health care resources to populations at higher risk changes in risk are defined by the concept of stochastic dominance up to order n the shape of the social utility function and an equity weighting function are used to model the inequality aversion of the social planner we show that for higher order risk changes the usual conditions on preferences such as prudence or relative risk aversion are not necessarily required to prioritise health care when there are different levels of uncertainty associated with otherwise similar patient groups

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

the food in security impact of land redistribution in south africa microeconometric evidence from national data summary the south african land reform program has been widely criticized for its slow pace as well as its apparent lack of contribution to poverty reduction no econometric evidence of the impact of land transfers has been provided to date and this paper attempts to fill this gap by considering the impact of receiving a land grant on households food insecurity propensity score matching and univariate probit estimates using two national household surveys indicate that on average land grant recipients are more food insecure than comparable non participants recursive bivariate probit estimates suggest that selection bias is not driving this result

third degree stochastic dominance here f x and g x are less than cumulative probability distributionis where x is a continuous or discrete random variable representing the outcome of a prospect the closed interval a b is the sample space of both prospects the integral shown in rule 2 and those shown throughout the paper are stieltjes integrals recall that the stieltjes integral fb f x dg x exists if one of the functions f and g is continuous and the other has finite variation in a b let d1 d2 and d3 be three sets of utility functions x d1 is the set containing all utility functions with 4 x and 1 x continuous and 41 x 0 for all xe a b d2 is the set with x 1 x 2 x continuous and q j x 0 02 x o for all xc a b d3 is the set with x 1 x 2 x 3 x continuous and 1 x 04 2 x o o for all xc a b here 1 x denotes the ith derivative of x hadar and russell proved that rule 1 is valid for all cd1 and rutle 2 is valid for all ed2 the authors point out that the set of probability distributions that can be ordered by means of second degree stochastic dominance is in general larger than that which can be ordered by means of first degree stochastic dominance note that in rule 2 they assume that x is not only an increasing function of x but also exhibits weak global risk aversion a condition guaranteed by requiring the second derivative of x to be nonpositive in this paper a condition which will be called third degree stochastic dominance is considered it is based on the following assumption about the form of the utility function x from a normative point of view one expects the risk premium associated with an uncertain prospect to become smaller the greater is the individual s wealth the plausibility and implications of this assumption h ave been explored by john pratt as well as others the risk premium of an uncertain prospect is that amount by which the certainty equivalent of the prospect differs from its expected value in mathematical terms given the prospect f x with expected value a the corresponding risk premium t is obtained by solving the following equation rb

risk lovers and the rent over investment puzzle in this paper we prove existence and uniqueness of equilibrium in a rent seeking contest given a class of heterogeneous risk loving players we explore the role third order risk attitude plays in equilibrium and find that imprudence is sufficient for risk lovers to increase rent seeking investment above the risk neutral outcome moreover we show that rent can be fully dissipated in a standard tullock contest played by a large number of risk lovers

south african land policy the legacy of history and current options abstract the highly dualistic farm structure of south africa and the low productivity of native african farmers have been the result of systematic distortions in land allocation output markets the provision of infrastructure agricultural credit and services the dualistic structure did not emerge because of genuine economies of scale in the large commercial sector other countries in latin america and africa that once supported a dualistic farm size structure through similar distortions have either implemented large scale land reforms or have experienced decades of peasant revolts and civil war the paper compares these international experiences to south africa and outlines judicial and market assisted approaches to south african land reform

risk aversion and the propensities for self insurance and self protection for a risk averse individual the methods for reducing the expected financial impact of a loss include reducing the severity of any loss that occurs self insurance and reducing the probability of the occurrence of a loss self protection the literature on this topic has pointed to several anomalies whereby the use of self protection and self insurance yield quite unsimilar results for example ehrlich and becker 5 show that self insurance is always a substitute for market insurance an insurance company s indemnifying a loss whereas self protection and market insurance might be complements dionne and eeckhoudt 4 show that a more risk averse consumer would always invest more in self insurance activities but not necessarily more in self protection activities they argue 4 42 that this result is counterintuitive and provides an exception to the widely accepted result that increased risk aversion reduces risky activities ehrlich and becker 5 639 argue that the incentive to self protect is not so dependent on attitude towards risk both of the above papers seem to take for granted that self protection activities reduce the riskiness of the final wealth distribution however as we argue below this is not the case if riskiness is defined as in rothschild and stiglitz 14 even if we use the variance as our risk measure we do not always reduce risk via self protection dionne and eeckhoudt suggest that these results might not be robust enough to extend to models that incorporate random initial wealth risk and state dependent preferences we show that the model seems to be very robust we also explain why self protection is not at all an exception to the long standing result of arrow 1 whereby more risk averse individuals undertake a lower

the rise of sector effects in major equity markets historically country effects have been dominant in explaining variations in global stock returns even in the developed markets and investors have segmented their allocations accordingly we set out to investigate whether this situation still prevails we found a significant shift in the relative importance of national and economic influences in the stock returns of the world s largest equity markets in these markets the impact of industrial sector effects is now roughly equal to that of country effects in addition to supporting the notion of increasing global capital market integration these findings suggest that country based approaches to global investment management may be losing their effectiveness

stronger measures of higher order risk attitudes this paper aims to extend the results by ross 1981 15 and by modica and scarsini 2005 13 to stochastic dominance of degree 4 and over specifically it is shown that ross approach can be extended to any order of risk attitude beyond the generalization proposed by modica and scarsini by means of sth degree increase in risk defined by ekern 1980 8 c 2010 elsevier inc all rights reserved

on crop biodiversity risk exposure and food security in the highlands of ethiopia this paper investigates the effects of crop genetic diversity on farm productivity and production risk in the highlands of ethiopia using a moment based approach the analysis uses a stochastic production function capturing mean variance and skewness effects welfare implications of diversity are evaluated using a certainty equivalent measured as expected income minus a risk premium reflecting the cost of risk we find that the effect of diversity on skewness dominates its effect on variance meaning that diversity reduces the cost of risk the analysis also shows that the beneficial effects of diversity

measuring stochastic technology the case of tulare milk production the flexible moment based approach to production analysis is used to measure the stochastic structure of large scale dairy production in tulare county california this approach is flexible because it does not impose restrictions on the relationships between decision variables and the moments of the probability distribution of output the parameter estimates support the hypothesis that second and third moments are functions of inputs and indicate that capital intensive dairies are riskier the implied behavior of a risk averse dairy manager changed markedly when the effects of inputs on the skewness of the output distribution were included in a decision model

poverty livelihood and class in rural south africa abstract using data from a national living standards survey undertaken in late 1993 this paper disaggregates and explores the economics of livelihood generation and class in rural south africa in an effort to contribute to the ongoing and vociferous debate in south africa about poverty and its alleviation pursuant to the suggestion of participants in a recent participatory poverty assessment this paper analyzes what might be termed the class structure of poverty after exploring the range of claiming systems and livelihood tactics available in rural south africa the paper offers a first look at who the poor are by disaggregating the rural population into discrete livelihood strategy classes non parametric regression methods are used to then estimate and graphically explore the nature of the livelihood mapping between endowments and real incomes in addition to identifying those endowment combinations that map to consumption levels below the poverty line the asset basis of poverty the topography of the estimated livelihood mapping helps identify the constraints that limit household s ability to effectively utilize their assets and endowments these results suggest that poverty is a matter of not only having few assets but also of constraints which limit the effectiveness with which those assets are used and poverty and livelihood policy needs to be designed accordingly

the impact of prudence on optimal prevention revisited this paper re examines the link between absolute prudence and self protection activities we show that the level of efiort chosen by an agent with positive and decreasing absolute prudence is larger than the optimal efiort chosen by a risk neutral agent if the degree of absolute prudence is less than a threshold that is utility independent and empirically veriflable we explain this threshold by a trade ofi between the variation of the variance and the level of the third moment of the loss distribution we also discuss our result in terms of skewness our contribution extends the model of eeckhoudt and gollier 2005

lobbying competition over trade policy counterlobbying over trade policy competition between opposing lobbies is an important factor in the endogenous determination of trade policy this paper investigates empirically the consequences of lobbying competition between upstream and downstream producers for trade policy the theoretical structure underlying the empirical analysis is the well known grossman helpman model of trade policy determination modified suitably to account for the cross sectoral use of inputs in production itself a quantitatively significant phenomenon with around 50 percent of manufacturing output being used by other sectors rather than in final consumption data from more than 40 countries are used in our analysis our empirical results validate the predictions of the theoretical model with lobbying competition importantly accounting for lobbying competition also alters substantially estimates of the welfare mindedness of governments in setting trade policy

tax rate uncertainty factor supplies and welfare uncertainty about prospective changes in tax rates may increase factor supplies and hence the tax base permitting a reduction in tax rates that could result in a net increase in welfare under empirically relevant assumptions about attitudes towards risk we find that when an individual exclusively saves or works the tax base rises in response to greater tax rate uncertainty so that welfare could indeed increase however when an individual both saves and works the supply of the randomly taxed factor declines with increased uncertainty implying that tax revenue and welfare decrease when the nonrandom tax rate is sufficiently low

substituting one risk increase for another a method for measuring risk aversion abstract this paper defines the rate of substitution of one stochastic change to a random variable for another it then focuses on the case where one of these changes is an nth degree risk increase and the other is an mth degree risk increase where n m 1 the paper shows that the rate of substitution for these two risk increases can be used to provide a broader definition and two additional characterizations of the nth degree ross more risk averse partial order the implications for local intensity measures of nth degree risk aversion are also examined the analysis organizes the existing results as well as generates new ones

if you cannot get your friends elected lobby your enemies we incorporate campaign contributions in the citizen candidate model of representative democracy with endogenous lobbying of felli and merlo 2006 in equilibrium lobbies contribute to the electoral campaign of candidates whose policy preferences are aligned with their own in the event that their preferred candidate does not win the election lobbies also transfer resources to elected politicians with opposed preferences to induce policy compromise on the other hand lobbies never make post electoral transfers to winning candidates whose electoral campaign they supported

creating rural livelihoods some lessons for south africa from experience elsewhere abstract a development path for south africa that will create jobs and reduce poverty must include the encouragement of greater labor intensity in agriculture especially of smallholder farming which was suppressed under apartheid there is however widespread skepticism on both the left and the right about the prospects for more labor intensive farming but this skepticism is called into question by both theory and evidence of the advantages of small scale production in certain products and circumstances there are now numerous examples of this in many parts of the world the paper discusses the preconditions for the development of such farming in south africa including land reform and the need to reorient investment and supporting economic and technical services research training marketing credit from the privileged large scale white farms to the undercapitalized and neglected black smallholders

lobbying under political uncertainty abstract this paper considers a model of lobbying described as a common agency game it departs from the current literature by assuming that the special interest groups are not a priori organized or unorganized and that the type of the politician is not common knowledge we characterize equilibria when the choice set of the politician consists of two policies we discuss the conditions leading to efficiency and the characteristics of the groups explaining their relative success in the process of influence we also offer some results for the general case including disjoint necessary and sufficient conditions for the equilibria to be efficient

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

testing for prudence and skewness seeking numerous theoretical predictions such as precautionary saving or preventive behavior have been derived for prudent decision makers further prudence can be characterized as downside risk aversion and plays a key role in preference for skewness we use a simple experimental method to test for prudence and skewness preference in the laboratory and compare the two to this end we introduce a novel graphical representation of compound lotteries that is easily accessible to subjects and test it for robustness using a factorial design prudence is observed on the aggregate and individual level we find that prudence does not boil down to skewness seeking we further provide some theoretical explanations for this result this paper was accepted by peter wakker decision analysis

experiential learning competitive selection and downside risk a new perspective on managerial risk taking it is part of managerial wisdom that managers need to take risks in order to succeed this is in stark contrast to the prominent agent based theories of experiential learning and competitive selection that are known to be biased against risky alternatives in the long run how can the positive managerial view on risk taking prevail given these results qualitative surveys of managers suggest risks to be acceptable if their outcome distribution meets certain criteria we argue in this paper that these criteria are widely congruent with low downside risk using a novel simulation design we analyze the effects of experiential learning and competitive selection on downside risk preferences in an ecology of agents in the long run experiential learning implies weak downside risk seeking whereas competitive selection leads to strong downside risk aversion furthermore competitive selection leads to the prevalence of outcome distributions with low downside risk in an ecology even if they have a significantly higher level of total risk than comparable distributions with more downside risk we draw implications for empirical studies on managerial behavior the online appendix is available at https doi org 10 1287 orsc 2017 1149

do risk lovers invest in self protection we show that there is a class of risk lovers who optimally choose a positive level of self protection investment in most cases a risk lover increases his self protection investment as he becomes less downside risk averse

the value and allocation of time in rural botswana abstract time use data indicate that there is substantial surplus labor in rural areas of botswana with the incidence of underutilization varying by age sex and asset position time allocations are influenced by economic incentives i e income and productivity effects the more productive capital the household has the more productive work its members perform particularly its children the positive productivity effect of capital on economic work somewhat outweighs its negative income effect time allocations also are constrained by a culturally determined division of labor by age and sex which however shows some flexibility at the margin

the pluralistic view of politics asymmetric lobbyists ideological uncertainty and political entry abstract the decision maker chooses a policy on behalf of two principals and has private information about his ideology the decision maker s expected rent can be fully extracted by congruent principals but not when principals objectives are too conflicting

education and women s time allocation to nonmarket work in an urban setting in india the allocation of time by individuals and households is an important concern of economists the author investigates time allocation to non market work among urban women in madras india estimating the derived demand for certain disaggregated measures of household work and child care hours with the primary goal of examining the responsiveness of non market time allocations to wages and income and to understand the role of education upon time allocations the study also examined the exogeneity assumption upon children and hired help variables which are among the other covariates included in the time allocation functions findings are based upon data collected in a 1980 81 household survey of 244 working women and 422 women who did not participate in labor market work the survey was restricted to nuclear households with or without dependents with married women aged 20 59 and with husband present and employed in the year preceding the survey data on non market work were collected using the recall method the study determined that women in madras city spend a considerable amount of time in home production it may be inferred that as a womans wage increases she will spend less time in home production by withdrawing time spent in teaching children an increase in household assets leads to an increase in time spent teaching children at the expense of other non market activities higher female education reduces the amount of time spent in all non market activities except teaching the children there is therefore an enormous relative reallocation of mothers time to childrens education

the story of the moment risk averse cypriot farmers respond to drought management this article illustrates the importance of estimating risk preferences when evaluating water policy using agricultural production data from the kiti region of cyprus we estimate farmers risk preferences a la antle journal of business and economic statistics 1 192 201 1983 american journal of agricultural economics 69 509 22 1987 and show sensitivity to higher order moments of profit such as skewness we show that farmers in the kiti region are risk averse with risk premiums in the region of 20 of expected profit we use these estimates to analyse the impact of a water quota from the perspective of three policy makers who differ only in their understanding of farmers risk preferences we show in the case of kiti that policy makers who model risk preferences incorrectly that is either a assume risk neutrality or b ignore down side risk wrongly predict the magnitude and direction of input responses and therefore the magnitude of welfare changes this highlights the importance of accomm

stochastic dominance analysis without the independence axiom we characterize the consistency of a large class of nonexpected utility preferences including mean variance preferences and prospect theory preferences with stochastic orders for example stochastic dominances of different degrees our characterization rests on a novel decision theoretic result that provides a behavioral interpretation of the set of all derivatives of the functional representing the decision maker s preferences as an illustration we consider in some detail prospect theory and choice acclimating preferences two popular models of reference dependence under risk and we show the incompatibility of loss aversion with prudence this paper was accepted by james smith decision analysis

labor market opportunities and intrafamily time allocation in rural households in south asia this paper utilizes a time allocation survey of a four year panel of households from six villages in semi arid tropic rural india estimates of the inter relationships between adult male female and child market wage rates and time allocated to the market domestic production leisure and schooling by boys and girls are presented the role of individual unobservable heterogeneity and self selection into activity participation is also accounted for the overall results suggest the importance of the opportunity cost of time in intrafamily time use

conflict and cooperation the structure of equilibrium payoffs in common agency abstract this paper is a contribution to the theory of common agency initiated by b d bernheim and m d whinston 1986 quart j econ 101 1 31 by common agency we mean the following an agent decides upon an action which affects its well being as well as the well being of n other individuals the principals each of whom offers a menu of payments contingent on the action chosen under complete information bernheim and whinston prove the existence of an interesting subset of nash equilibria they call truthful provide arguments in defense of this refinement and characterize the set of equilibrium payoffs this paper provides a set of theoretical results to identify the structure of equilibrium payoffs with special attention to the payoff of the agent by focusing on complete information we are in a position to evaluate the effects of competition per se on the magnitude of the rent obtained by the agent we illustrate this user guide on a wide and diverse family of applications including auctions competition for an input economic influence and private production of public goods journal of economic literature classification numbers c72 d72

changes in risk and the demand for saving abstract how does risk affect saving empirical work typically examines the effects of detectible differences in risk within the data how these differences affect saving in theoretical models depends on the metric one uses for risk for labor income risk second degree increases in risk require prudence to induce increased saving demand however prudence is not necessary for first degree risk increases and not sufficient for higher degree risk increases for increases in interest rate risk a precautionary effect and a substitution effect need to be compared this paper provides necessary and sufficient conditions on preferences for an n th degree change in risk to increase saving

conditional coskewness in stock and bond markets time series evidence in the context of a three moment intertemporal capital asset pricing model specification we characterize conditional coskewness between stock and bond excess returns using a bivariate regime switching model we find that both conditional u s stock coskewness the relation between stock return and bond volatility and bond coskewness the relation between bond return and stock volatility command statistically and economically significant negative ex ante risk premiums the impacts of stock and bond coskewness on the conditional stock and bond premiums are quite robust to various model specifications and various sample periods and also hold in another major developed country the united kingdom the findings also carry important implications for portfolio management