occupation and the political economy of trade job routineness offshorability and protectionist sentiment the recent backlash against globalization in many advanced economies raises questions about the source of this protectionist sentiment traditional accounts generally attribute the welfare consequences of trade to skill level or industry characteristics or instead emphasize the nonmaterial determinants of support for openness consequently we know little about how a major labor market characteristic occupation shapes both the distributional consequences of and preferences toward trade openness we propose and test a new theory of trade policy preferences based on occupation characteristics drawing from the tasks literature in economics we argue that occupation characteristics are a key determinant of how trade affects workers and thus individuals trade preferences our theory suggests that in advanced economies individuals in routine task intensive occupations will be negatively affected by trade and thus more protectionist this relationship will increase in the degree to which occupation job tasks can be provided from a distance i e offshorable we find support for our theory using data from the 2003 and 2013 international social survey programme in high income democracies our results suggest that the occupational characteristics of routineness and offshorability are important determinants of trade preferences offering additional understanding of the sources of protectionist sentiment even after controlling for labor market characteristics suggested by conventional wisdom

valuing agricultural firms an examination of the contingent claims approach to pricing real assets abstract uncertainty about prices output demand and managerial decisions is not easily incorporated into a valuation model for real assets however techniques originally developed in the option pricing literature can accommodate these complexities this paper examines the contingent claims approach to valuing real assets a model for the value of an agricultural producer is derived optimal shutting and reopening volatile output and demand and other realistic features are included the model differs markedly from conventional discounted cash flow models empirical tests using prices of rubber and palm oil estates listed on the stock exchange of singapore offer some support for the model

the effects of development constraints on forest management at the urban forest interface this article develops a model of a forest owner operating in a small open city environment where the rent for developed land is increasing concave in nearby preserved open space and is rising over time reflecting an upward trend in households income within this framework we examine how changes in nearby preserved open space and alternative development constraints affect an individual private landowner s decisions regarding both regeneration harvests and conversion dates we also examine how such policies affect development density once conversion from forestry to residential use occurs we show that when residential rents change over time the nature of the timber problem at the urban forest interface changes because it forces us to allow for the possibility of changes in land use from timber to residential use as a result the traditional faustmann setup is not suitable to study forest management decisions at this interface we also find that in the presence of rising income increases in permanently preserved open space hasten regeneration and conversion cuts of a neighboring parcel currently under forest use and leads to lower density development once conversion takes place compared to the case where income is constant we also find that both a binding development moratorium and a binding minimum lot size policy can postpone regeneration and conversion cut dates and thus help to protect open space even if only temporarily however the policies do not have the same effects on development density of converted forestland while the former leads to high density development the latter encourages low density development

option pricing and timberland s land use conversion option reply thomson s response to my recent article zinkhan 1991 in this journal proposes an alternative approach for valuing a timberland land use conversion option the most significant distinction between the zinkhan model zm and the thomson model tm is the selection of different analogies for two black scholes option pricing model parameters the underlying asset price and the exercise price thomson defines the adjusted price of the alternative land use s in his response to be the underlying asset price the sum of the land expectation value for continuous forest production lev and the physical costs associated with converting from timber to the alternative land use cc is treated as the exercise price x in contrast the gap sadj in zinkhan between the price of the alternative land use pal to after adjustment and the highest bid received for the given tract poffo after adjustment serves as the underlying asset price in the zm zinkhan assumes that the exercise price x is the sum of two values as of the time of expiration of the option t cc and the absolute value of the negative impact on lev resulting from a deviation if any from the optimal rotation age i there are several serious problems associated with the tm first the tm does not recognize the landowner s forfeiture of the land use conversion option from timber production to some alternative use if the tract is converted thus the opportunity cost associated with conversion is underestimated given thomson s framework for estimating the land use conversion option s value a solution to the problem would be indeterminable if the exercise price was simply modified through the addition of an estimate of the land use conversion option a solution would be unattainable since exercise price is an input in the process of calculating the same land use conversion option zinkhan partially avoids this problem by utilizing poffo rather than levo when estimating sadj where a bid is considered by the landowner only if poff levo poffo which is subtracted from palto after necessary adjustments in order to maintain the zm analogy for underlying asset price might at least partially reflect the value of the land use conversion option in contrast the tm s lev does not reflect this option value because of the possibility that the market clearing price of the cutover timberland tract at time 0 will

fragmentation and multinational production abstract this paper examines the consequences of falling transport costs for intermediate goods and shows how this leads to the spatial fragmentation of production as firms divide their production between countries they become either vertical multinationals if upstream activities are labour intensive or horizontal multinationals if downstream activities are labour intensive in the former case the volume of world trade increases and in the latter it falls fragmentation need not narrow international factor price differences which depend on the factor intensity of the activities that relocate

an r d race with knowledge accumulation i develop a model of an r d race with knowledge accumulation my model does not inherit the memorylessness property of the exponential distribution that troubles existing models of r d races hence firms knowledge stocks are no longer irrelevant to their behavior during the r d race and knowledge accumulation has strategic implications in this more general setting i obtain results that stand in marked contrast to the previous literature in particular under some conditions the firm that is behind in the race engages in catch up behavior this pattern of strategic interactions action reaction is consistent with empirical research copyright 2003 by the rand corporation

the tree cutting problem in a stochastic environment the case of age dependent growth abstract harvest policies are derived for growing biological assets e g forests livestock subject to stochastic age dependent growth and price uncertainty the task posed is analyzed as a continuous time optimal stopping problem for diffusion processes both single and ongoing rotation problems are considered qualitative comparative static and numerical results are provided

input trade and the location of production stanley engerman has been a presence in the department of economics at the university of rochester for over 37 years he was an early and eminent participant in the cliometric revolution that swept throughout the economichistory profession in the 1960 s and 1970 s we doubt that anyone could have anticipated the gathering storm that greeted the publication of time on the cross co authored with robert fogel in 1974 since that time stan has become the world s leading authority on slavery in the americas and the caribbean as well as an important contributor to a set of issues ranging from the 19th century american iron industry to the economics of british imperialism his own human capital as extensive as we know it to be is complemented by capital of the physical variety an enormous library of research material spilling over into bookshelves and floors in several offices in rochester and attracting a yearly stream of itinerant scholars anxious to pick his books as well as his brains in this short note we intend to honor stan by applying the tools of international trade theory to illustrate several episodes in the development of industries both in the united states and in world markets a colleague of stan s at rochester lionel mckenzie once commented that in 19th century britain lancashire would have been unlikely to produce cotton cloth if the cotton had to be grown in england mckenzie 1954 this remark expresses in utter brevity the importance to production and trading patterns of the domain of tradability of raw materials or intermediate products for example it is difficult to envisage the patterns of production and trade in modern day japan should it be denied access to world supplies of oil coal and iron ore local production of each of these items being negligible transport costs as well as man made impediments to trade are mainly responsible for variations in the degree of access countries possess to the inputs available in the markets of other countries simple competitive generalequilibrium models of production of the type intensively utilized in the theory of international trade can usefully be harnessed to shed light on several episodes in 19th century american economic history in which the nature of trading possibilities for raw materials heavily influenced the extent to which local american production of final commodities could withstand the pressures in world markets without the aid of protective devices the simplest model setting in which to investigate the importance of trade in raw materials is a ricardian model augmented by the necessity of using a produced input in addition to labor in at least one commodity denote the pair of final commodities by x and y where in order to produce y a certain quantity of intermediate good z is required the competitive profit conditions for the two final commodities are shown in equation 1

the drivers of structural change the main goal of this paper is to provide an integrated survey of the literature devoted to identifying the drivers of structural change broadly defined as the process of reallocation of economic activity across the three broad sectors agriculture manufacturing and services using the ggdc 10 sector database this paper first presents the empirical facts associated with structural change in different regions of the world that is europe and the usa asia latin america and africa then reviews four determinants of structural change i changes in income ii changes in relative sectoral prices iii changes in input output linkages and iv changes in comparative advantage s via globalization and trade

evaluating natural resource investments notwithstanding impressive advances in the theory of finance over the past 2 decades practical procedures for capital budgeting have evolved only slowly the standard technique which has remained unchanged in essentials since it was originally proposed see dean 1951 bierman and smidt 1960 derives from a simple adaptation of the fisher 1907 model of valuation under certainty under this technique expected cash flows from an investment project are discounted at a rate deemed appropriate to their risk and the resulting present value is compared with the cost of the project this standard textbook technique reflects modern theoretical developments only insofar as estimates of the discount rate may be obtained from crude application of single period asset pricing theory but see brennan 1973 bogue and roll 1974 turnbull 1977 constantinides 1978 the inadequacy of this approach to capital budgeting is widely acknowledged although not widely discussed its obvious deficiency is its the evaluation of mining and other natural resource projects is made particularly difficult by the high degree of uncertainty attaching to output prices it is shown that the techniques of continuous time arbitrage and stochastic control theory may be used not only to value such projects but also to determine the optimal policies for developing managing and abandoning them the approach may be adapted to a wide variety of contexts outside the natural resource sector where uncertainty about future project revenues is a paramount concern

industry and firm specific factors of innovation novelty this article investigates the underlying factors that might shape the firm s choices with respect to degrees of innovation novelty using a sample of 2983 firms observed under the portuguese community innovation survey we assess the relative relevance of a set of firm and industry specific factors in explaining firms choices about incremental or radical innovation the results indicate that both the firm s idiosyncratic historical factors giving rise to heterogeneous r d capabilities and the industry context have power to shape the firm s innovation choices even though firm specific factors appear to be more powerful the estimated impacts on firm s innovation novelty are nonetheless significantly moderated by the type of firm and industry

interacting factor endowments and trade costs a multi country multi good approach to trade theory abstract we provide a synthetic analysis of the different ways in which countries participate in the world economy classic trade questions are reconsidered by generalizing a factor proportions model to multiple countries multiple goods or multi stage production and country specific trade costs each country s production specialization trade and welfare is determined by the interaction between its relative endowment and its trade costs we consider the effects of allowing one good to fragment into component and assembly production the volume of trade and welfare levels are higher with fragmentation for most countries although for many countries these variables fall with fragmentation

wage convergence and trade we examine differences in wage rates across countries for workers employed in the same industry distinguishing workers in the low medium and high skill groups these differences are large and show persistence over time we ask nonetheless whether there is evidence of convergence much as is done in studies of convergence in per capita income across countries with our focus on the micro level we expect convergence to reflect at least in part the degree of integration of a country or industry into the world economy and examine particularly the role of market integration and trade our results show strong evidence of convergence in a diverse sample of 39 countries which includes most large economies whether rich or poor the estimated convergence rate over the period from 1995 to 2008 is about 4 per year for workers in all skill groups higher in the more integrated economies of the eu than in other economies without such open borders and lower in industries supplying services rather than manufactures also we find evidence that the rate of growth of domestic output impacts positively on the growth of wages in an industry providing a source for ongoing deviations from the convergence prediction

a patent race in a real options setting investment strategy valuation capm beta and return volatility abstract in this paper we study financial properties of r d intensive firms through a continuous time real options patent race model numerical analysis in this study shows that intense competition drives a firm to invest more aggressively which then pushes up its cost of capital and return volatility while introducing negative return correlation with its competitor furthermore we find that a firm s position in competition has important impacts on its financial properties for instance a firm s cost of capital is a non monotonic function of its relative position in the race in addition the relationship between cash flow uncertainty and investment can be negative when a firm is far ahead or far behind or positive when firms are close in the race

domestic value chains as stepping stones to global value chain integration identifying the determinants of global value chain gvc integration is essential to understand the past expansion and current slowdown in gvcs in this paper we study the role of domestic value chains dvcs for gvc integration in the presence of industry specific fixed costs of fragmenting production and of switching across input suppliers dvcs can either be stepping stones or stumbling blocks for subsequent gvc entry focusing on backward linkages that is the sourcing of intermediates we provide robust empirical evidence in favour of the stepping stone hypothesis in our benchmark specification a one standard deviation increase in dvc integration raises subsequent gvc integration by about 0 4 to identify the mechanisms at work we exploit two dimensions of industry level heterogeneity product differentiation a proxy of fragmentation costs and relationship specificity a proxy of the costs of switching between suppliers we find that dvc integration is less conducive to gvc integration in industries that are characterised by relatively high switching costs and relatively low fragmentation costs

forest conservation in costa rica when nonuse benefits are uncertain but rising stochastic dynamic programming is used to investigate optimal holding of primary tropical forest in humid costa rica when future nonuse benefits of forest conservation are uncertain and increasing the quasi option value of maintaining primary forests is included as a component of investment in natural capital although the impact of uncertainty on conservation incentives is substantial our results indicate that a rising trend in future benefits and compensation by the international community for beneficial spillovers are more important factors in determining optimal holdings of forest stocks without compensatory payments however further deforestation may be warranted

on estimating the option value of preserving a wilderness area in this paper option pricing theory is used to analyse whether or not to preserve a wilderness area a numerical approach is demonstrated that can be applied to any generalized stochastic process the impact of assuming that amenity value follows a logistic process rather than geometric brownian motion is considered the calculation of critical levels for amenity value necessary to justify preserving a wilderness area such as the killarney provincial park in ontario or the headwaters forest in california is demonstrated the impact of changing the assumed growth and volatility of amenity value is also examined jel classifcation d81 q26 ce memoire utilise la theorie de la tarification d une option pour analyser si on doit preserver un espace naturel on utilise une approche numerique qui peut etre appliquee a tout processus stochastique generalise on examine l impact de possibilites que le profil de la valeur de la ressource dans la temps suive un processus logistique plutot qu un pattern geometrique de type brownien le texte montre le calcul des niveaux critiques de la valeur de la ressource qui seraient necessaires pour justifier la preservation d une espace naturel comme le parc provincial killarney en ontario ou les forets headwaters en californie l impact de postulats differents quant a la croissance et a la volatilite de la valeur de la ressource est examine

international outsourcing and factor prices with multistage production we develop a dual representation of the technology of international fragmentation for an industry using 2 factors in a continuum of stages we then derive a generalised factor price frontier which incorporates an endogenous adjustment of the margin of fragmentation using this frontier in a 2 2 general equilibrium model we investigate the role of outsourcing in the adjustment to a decline in the final output price of the multistage industry and the attendant factor price effects we also explore the implications of an improved technology of international fragmentation on the margin of fragmentation and on domestic factor prices

strategic growth options we provide a strategic rationale for growth options under uncertainty and imperfect competition in a market with strategic competition investment confers a greater capability to take advantage of future growth opportunities this strategic advantage leads to the capture of a greater share of the market either by dissuading entry or by inducing competitors to make room for the stronger competitor as a result of this strategic effect payoffs are in a rough sense more convex than in the case of no investment in a growth option when the strategic advantage is strong increased uncertainty encourages investment in growth options higher uncertainty means more opportunity rather than simply larger risk if the strategic effect is weak the reverse is true on the other hand an increase in systematic risk discourages the acquisition of growth options our results contradict the view that volatility is a strong disincentive for investment

options on the minimum or the maximum of two risky assets analysis and applications this paper provides analytical formulas for european put and call options on the minimum or the maximum of two risky assets the properties of these formulas are discussed in detail options on the minimum or the maximum of two risky assets are useful to price a wide variety of contingent claims of interest to financial economists applications discussed in this paper include the valuation of foreign currency debt option bonds compensation plans risk sharing contracts secured debt and growth opportunities involving mutually exclusive investments

impacts of carbon based policy instruments and taxes on tropical deforestation the impacts of carbon payments and income taxes on curbing tropical forest loss are analyzed under a market equilibrium framework the supply of cleared forest land was derived by using a two period utility maximization model when the carbon sequestration of a private forestholder is credited the land demand was derived from the profit maximization problem of a cash crop farmer the model was applied to data from the humid chaco eco region of paraguay the results indicate that taxes on cash crop and forestry incomes may in fact be ineffective in curbing forest loss carbon payments however would effectively reduce forest clearing in the context studied a carbon payment of 30 per ton of carbon would limit deforestation to 10 of existing forest cover a reversible carbon crediting system in which a forestholder can redeem a credited forest seems to substantially increase at least in the short run the effectiveness of carbon payments carbon payments could also complement the tax on cash crop income in curbing tropical forest loss an effective policy to combat tropical deforestation should therefore jointly consider forestry and cash crop sectors

free entry and social inefficiency our goal is to provide a simple yet general exposition of the conditions under which the number of entrants in a free entry equilibrium is excessive insufficient or optimal our analysis compares the number of firms that enter a market when there is free entry with the number that would be desired by a social planner who is unable to control the behavior of firms once they are in the market that is we consider the second best problem of choosing the welfare maximizing number of firms while we take as given their noncompetitive behavior after entry we demonstrate that the crucial conditions for establishing the presence of an entry bias can be stated quite simply in terms of the outcome of the postentry game played by entrants in contrast to previous work we do not need to model this postentry game explicitly

public technology transfer commercialization and business growth abstract this study analyzes the conditions for the commercialization of public technologies transferred to the private sector and the subsequent effect on business growth we focus on the commercial exploitation of technologies transferred by universities and public research institutes u pris to companies the empirical analysis uses detailed information regarding an extensive set of actual instances of public private technology transfer in korea 514 cases of technologies transferred by 43 major u pris to highlight the role of company absorptive capacity and internal innovation capabilities cooperation with u pris and the intensity of market competition in determining commercialization success and business growth we find that the intensity of market competition significantly influenced the paths along which absorptive capacity and internal innovation capacity affected successful commercialization and successful commercialization in turn affected business growth effective partnership is a key factor of the successful commercialization of transferred technologies irrespective of market situations absorptive capacity contributes to their short term success and long term growth when market competition is strong

applications of option pricing theory twenty five years later nobel lecture to the memory of alfred nobel december 9 1997 this abstract was borrowed from another version of this item

optimum forest rotation in an imperfect stumpage market with a changing demand function the purpose of this study is to determine the behavior of optimum lengths of forest rotation periods under conditions of imperfect markets and non constant real price behavior for stumpage the analysis expands on the previous work by nautiyal and fowler 1980 and newman gilbert and hyde 1985 determination of optimum forest rotations is an important problem facing forest managers there has been considerable debate as to which criterion should be used for this determination one criterion based on traditional forest management is production of maximum sustained yield per unit time other widely accepted criteria have been centered around maximum net

factor bias and technical progress abstract the role of factor bias in technical progress has been a bone of contention between labor economists and international trade theorists by considering progress that results in finite changes in techniques these two views can be reconciled for example labor saving technical progress can result in lowered real wages even if it is concentrated in the more labor intensive of two commodities initially produced

searching for an optimal rotation age for forest stand management under stochastic log prices due to rapid change in timber prices in the japanese market most likely affected by imported timber from countries such as the u s canada and the nordic countries the domestic forest managers have been facing a large degree of future price uncertainty because of this it becomes necessary to take the future price uncertainty into account within the forest management framework in this paper the continuous time stochastic process i e the geometric brownian motion has been used to model the log price process the binomial option pricing approximation was then applied to value the sugi cryptomeria japonica and hinoki chamaecyparis obtusa forested land under stochastic log prices in order to search for an optimal rotation age our experiments with the proposed two state stochastic dynamic programming model showed that when the current log price is high enough to cover all costs an optimal rotation age from the stochastic price and deterministic price models coincides although the total expected present net value from management activities differs also it was shown that as the current log price decreases an optimal rotation age derived from the stochastic price model becomes longer than that from the deterministic price model if the current log price further decreases then forest management will be abandoned and the forest stand will be converted into alternative uses

trade and protection with multistage production this paper analyses trade in manuf acutured goods that are produced via a vertical production structure with many stages where some value is added at each to an intermediate product to yield a good in process ready for the next stage we consider the stage at which a good is traded to be an economically endogenous variable with comparative advantage determining the pattern of production specialization by stages across countries we study how endowment changes and policy shifts move the margin of comparative advantage which thus provides a channel for resource allocation adjustment that is additional to the usual ones of factor substitution and changes in the quantity of output

innovation threats and strategic responses in oligopoly markets this paper deals with the strategic reaction of firms to competitive threats stemming from newly developed products of actual competitors product innovation projects go through multiple time consuming stages with several continuation termination decisions hence competitors can react to the threat before the new product is introduced and thereby may prevent or facilitate the product s introduction we consider a duopoly model where firm 1 can start a two stage product innovation project for obtaining a horizontally and vertically differentiated product in between the two stages firm 2 can react by making an investment that improves the competitive position of the current product we find that under weak vertical differentiation firm 2 wants firm 1 to innovate horizontal differentiation softens competition and firm 2 over invests to induce firm 1 to launch the new product second under strong vertical differentiation firm 1 starts the product innovation project triggering under investment by firm 2 but never finishes it the under investment makes firm 2 a weaker competitor which induces firm 1 not to innovate third under very strong vertical differentiation firm 2 prevents a launch of the new product by over investing this results in a strong competitive position of firm 2 it therefore captures such a big market share that firm 1 will not introduce the new product the situation of firm 1 in the old market has worsened the option to complete the innovation created by initiating the first stage of the innovation project has a negative value for firm 1

consequences of offshoring to developing nations labor market outcomes welfare and corrective interventions our parsimonious two country developed country and developing country model of offshoring provides nuanced results these include cases where wages monotonically improve as well as where wages exhibit an inverted u relationship with offshoring cost reductions we identify conditions under which these relationships hold since global welfare always rises with improvements in offshoring technology we find that there is a role for a minimum wage alternatively wage tax in the developing country we derive such a policy s optimal level there is also the possibility of a developed country optimal offshoring tax for extracting terms of trade benefits we finally analyze the two country nash equilibrium in policies jel f11 f13 f16 f66 o19 o24

how not to pay field experimental evidence on the design of redd payments abstract payments for ecosystem services pes can use many design features we investigate the impact of payment conditionality types i e different specifications when to pay and when not to pay for pes on deforestation and agricultural production in a lab in the field experiment our experiment also tests variations in contract period and payment volatility we designed a highly visual simulation game to characterize the decision situation of a cattle rancher in brazil the player can expand extensive pasture by deforestation or intensify existing pasture the model includes both a land and a capital constraint we applied the game in an economic framed lab in the field experiment in tocantins brazil payments conditional on forest carbon stock lead to slow but steady deforestation while payments conditional on forest carbon stock change suppressed deforestation more strongly but payments conditional on stock increase cattle production while payments conditional on stock change have no effect on production thus depending on the level of leakage either type of conditionality can be more cost effective in reducing global carbon emissions contracts with limited periods lead to strong deforestation after the end of the payment period payment volatility had no significant effect

handling uncertainty in agricultural supply chain management a state of the art given the evolution in the agricultural sector and the new challenges it faces managing agricultural supply chains efficiently has become an attractive topic for researchers and practitioners against this background the integration of uncertain aspects has continuously gained importance for managerial decision making since it can lead to an increase in efficiency responsiveness business integration and ultimately in market competitiveness in order to capture appropriately the uncertain conjuncture of most agricultural real life applications an increasing amount of research effort is especially dedicated to treating uncertainty in particular quantitative modeling approaches have found extensive use in agricultural supply chain management this paper provides an overview of the latest advances and developments in the application of operations research methodologies to handling uncertainty occurring in the agricultural supply chain management problems it seeks to i offer a representative overview of the predominant research topics ii highlight the most pertinent and widely used frameworks and iii discuss the emergence of new operations research advances in the agricultural sector the broad spectrum of reviewed contributions is classified and presented with respect to three most relevant discerned features uncertainty modeling types programming approaches and functional application areas ultimately main review findings are pointed out and future research directions which emerge are suggested

conservation payments under uncertainty the decision of whether to retain forest or convert to another land use is affected by uncertainty over future land use returns this paper examines the design of conservation payments to landowners under uncertainty payments are either indexed to the returns from deforestation agriculture or to a market value associated with forest nonuse benefits payment size depends on the degree of correlation between payments and agricultural returns and their relative volatility market based payments for reducing emissions from deforestation and degradation redd are simulated for brazilian soybean growers payments indexed to carbon prices are larger than those indexed to international soybean prices

some simple results on the gains from trade from growth and from public production abstract a simple compact but general revealed preference type of argument is used to derive results on the gains from trade from terms of trade changes and from exogenous resource growth the approach extends to the welfare evaluation of public sector production the relation between the sufficiency conditions for welfare improvement derived from this approach and the necessary and sufficient conditions derived in an alternative approach are briefly discussed most of the argument is conducted in the context of a representative individual economy though it is shown to extend in an essentially unchanged way to cases where redistribution is an issue

does vertical specialization increase productivity this paper investigates the impact of global value chain participation on productivity using data on trade in value added from the world input output database the results based on a panel estimation covering 13 sectors in 40 countries over 15 years suggest that participation in global value chains is a significant driver of labor productivity backward participation in global value chains that is the use of imported inputs to produce for exports emerges as particularly important an increase by 10 percent in the level of global value chain participation increased average productivity by close to 1 7 percent

option valuation of claims on real assets the case of offshore petroleum leases this paper extends financial option theory by developing a methodology for the valuation of claims on a real asset an offshore petroleum lease several theoretical and practical problems not present in applying option pricing theory to financial assets are addressed most importantly we show the necessity of combining option pricing techniques with a model of equilibrium in the market for the underlying asset petroleum reserves the advantages of this approach over conventional discounted cash flow techniques are emphasized the methodological development provides important insights for both company behavior and government policy promising empirical results are reported

the valuation of forestry resources under stochastic prices and inventories a contingent claims approach to capital budgeting may be preferable to traditional methods where uncertainty and managers strategic reactions to changing conditions are impor tant as an example of such a case we solve the classical problem of the duration of an investment in forestry resources i e when to cut down the trees in the general case of stochastic output prices and stochastic natural growth rate and timber inventories a con tingent claims approach is used to value the forestry resources as a function of 1 sto chastic prices and inventories and 2 an asymmetric optimal production policy that incorporates the option to halt timber production temporarily i introduction classical capital budgeting techniques are based on the assumption that fu ture cash flows follow a rigid pattern and can be accurately predicted far into the future on the basis of such cash flow predictions the project is either accepted or rejected the uncertainty in the project and management s strategic reactions to changing conditions are dealt with only superficially at best a risk adjusted interest rate is employed and various deterministic scenarios are plotted out in situations where uncertainty and management s strategic reactions to it are im portant the classical technique is apt to lead to wrong decisions the technology needed to deal with such problems more accurately is becoming available the purpose of this paper is to present a stylized example of how it can be used our example is a general solution to the classical duration problem of the optimal control of a long term renewable resource investment such as forestry resources i e when to chop down a tree 1 if the prices and the natural growth rate of the inventory of forest timber are assumed to be deterministic the optimal control is very simple to derive but when both the price and inventory of timber are stochastic the problem becomes both stochastic and asymmetric the asym

trade in goods and trade in tasks an integrating framework abstract we introduce a simple but flexible analytical framework in which both trade in goods and trade in tasks arise we use this framework to provide versions of the gains from trade and the famous four ho theorems heckscher ohlin factor price equalisation stolper samuelson and rybczynski that apply to this environment we extend our framework to accommodate monopolistic competition and two way offshoring and to integrate theoretical results of the early offshoring literature

globalization and the skilled city abstract the location of economic activity both across and within countries has undergone dramatic shifts over the last five decades three key trends stand out first cross country inequality has declined as many developing countries have grown rapidly second economic geography within countries has instead grown more unequal in both the developed and the developing world third within country spatial disparities have grown mainly because of the disproportionate success of skilled cities in this paper i develop a model that jointly explains these patterns as a consequence of deepening international economic integration my model explains the faster population and output growth of skilled cities as well as their tendency to increase their initial skill advantage consistent with the evidence my theory predicts a non monotonic path of urban growth in developed countries the model predicts a future shift in worldwide urban hierarchies as some developing world cities overtake unskilled cities in industrialized countries along global supply chains

preemptive patenting and the persistence of monopoly this article takes a different tack and inquires whether institutions such as the patent system create opportunities for firms with monopoly power to maintain their monopoly power the results apply to other situations such as brand identification spatial location and capacity expansion which share the characteristic that early or preemptive actions may lower the returns to potential competitors

arbitrage pricing capital asset pricing and agricultural assets a new asset pricing model the arbitrage pricing theory has been developed as an alternative to the capital asset pricing model the arbitrage pricing theory model is used to analyze the relationship between risk and return for agricultural assets the major conclusion is that the arbitrage pricing theory results support previous capital asset pricing model findings that the estimated risk associated with agricultural assets is low this conclusion is more robust for the arbitrage pricing theory application because it provides a better explanation of the relationship between risk and returns than does the capital asset pricing model

an in depth economic restructuring framework by using particle swarm optimization abstract the aim of this paper is the development of an integrated framework based on environmental input output analysis for optimizing the economic structure of an economy the restructuring process is approached as a constraint optimization problem where the optimized variables are the elements of the matrix of domestic technical coefficients a method for determining the optimal level of the productive linkages of an economy in order to maximize its output with the minimal greenhouse gas emissions the possible is suggested the proposed methodology is able to join both environmental and economic policy targets in the form of predefined constraints the objective function which is going to be minimized expresses the greenhouse gas emissions ghg intensity or ghg emissions per unit of output a particle swarm algorithm is employed for the solution of the optimization problem an illustrative application to the greek economy was carried out the experimental results revealed that if the greek economy will apply policies for boosting the sectors of high and medium high r d intensity then the greenhouse gas emission per unit of gross domestic product of greece would be reduced furthermore the promotion of high and medium high r d intensity sectors is connected with an important improvement of the production linkages to a wide range of sectors highlighting the important spillover effect of the suggested restructuring process

options on the maximum or the minimum of several assets using an intuitive approach that also provides new intuition concerning the black and scholes equation this paper extends the results of johnson and stulz to the pricing of options on the minimum or the maximum of several risky assets

harvest decisions and asset valuation for biological resources exhibiting size dependent stochastic growth optimal harvest rules and preharvest valuation procedures are derived for biological assets with stochastic size dependent growth in a stochastic price environment these issues are analyzed as continuous time optimal stopping problems both the single rotation and ongoing rotations problems are addressed the sensitivity of harvest and valuation rules is assessed the results are compared with those derived from a myopic look ahead procedure and with the corresponding findings for age dependent growth copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

entry deterrence and innovation in durable goods monopoly this paper investigates the efficiency of innovation investments in a durable goods monopoly when a potential entrant threatens to innovate as well we show that the durability of the good endows the monopolist with the power to discourage rival innovation since current sales alter the demand for a new generation of the good the equilibrium is therefore determined not only by competitive pressure due to time inconsistency but also by the incumbent s concern for maintaining the technological leadership we demonstrate that entry deterrence followed by no innovation always implies underinvestment in innovation

optimal forest rotation when stumpage prices follow a diffusion process a key assumption in the faustmann rule for financial maturity is that stumpage prices are constant over time timber price series however exhibit wide fluctuations over time which this paper models as a lognormal diffusion process comparing the diffusion results modeled here to the fixed price faustmann results show 1 the prescribed rotation length is generally longer 2 computed stand values are higher using the diffusion model with the greatest divergence occurring when a stand is about the midpoint of a rotation 3 as the stumpage price volatility increases the gain in computed npv increases though in a nonlinear fashion

offshoring of routine tasks and de industrialisation threat or opportunity and for whom abstract offshoring or overseas sourcing of routine tasks generates efficiency gains that benefit consumers and workers with skills similar to those whose very jobs are threatened by offshoring essentially the interaction between offshoring footloose capital and agglomeration economies locks the comparative advantage of advanced nations in complex or strategic functions while labour services in routine tasks the coordination of which is easily codified are provided by low wage developing nations through the fibre optic cable in this framework the partial equilibrium view that offshoring is necessarily detrimental to workers in advanced nations is misguided because the implicit counterfactual that keeping the off shored jobs would have no macroeconomic impact on the economy is not warranted in addition inasmuch as routine tasks create few positive feedbacks trade in tasks can be an impediment to income convergence unlike trade in goods in short this paper qualifies the views that offshoring hurts workers in the north and accelerates income convergence between the north and the south

how many us jobs might be offshorable using detailed information on the nature of work done in over 800 us bureau of labor statistics occupational codes this paper ranks those occupations according to how easy hard it is to offshore the work either physically or electronically using this ranking it is estimated that somewhere between 22 and 29 of all us jobs are or will be potentially offshorable within a decade or two no estimate is made of how many jobs will actually be offshored since the rankings are subjective two alternatives are presented one is entirely objective the other is an independent subjective ranking in general they corroborate the rankings albeit not perfectly it is found that there is little or no correlation between an occupation s offshorability and the skill level of its workers as measured either by educational attainment or wages however it appears that controlling for education the most highly offshorable occupations were already paying significantly lower wages in 2004

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

on the valuation of american call options on stocks with known dividends both the roll and the geske equations for the valuation of the american call option on a stock with known dividends are incorrectly specified this note presents the corrected valuation formula explains the misspecifications and provides a numerical example

planning timber production with evolving prices and costs the traditional faustmann solution to the timber harvesting problem was developed for an environment in which prices costs and technology were constant recent contributions recognizing the evolution of economic institutions have developed solutions to optimal harvesting problems under a variety of more realistic assumptions nautiyal and fowler 1980 show that the socially desirable rotation in a monopolistic situation is longer than that which maximizes the monopolist s present worth but is shorter than the atomistic rotation p 213 heaps and neher 1979 derive the optimal rotation when the rate of harvest is constrained bare and waggener 1980 investigate the value of timberland when timber prices change using a traditional faustmann model murphy fortson and bethune 1977 deal with an imperfect capital market one problem not addressed by recent contributions concerns the violation of the assumption of constant price and cost functions for timber production this assumption clearly does not hold stumpage prices exhibit substantial short run fluctuations and systematic long run trends for southern pine and douglas fir two species that are potential crops for timber plantations historical evidence demonstrates that stumpage prices relative to other price have grown steadily for the period 1913 1978 the ratio of southern pine stumpage price to prices paid by farmers increased at a 4 annual rate while the same ratio for douglas fir increased at an annual rate of 5 7 1 for douglas fir and southern pine forecasts of prices and costs based on his

strategic wholesale pricing in a supply chain with a potential entrant this paper develops an adverse selection model for a two stage supply chain with one supplier one retailer and a potential outside entrant supplier who makes a partially substitutable product the work is different from most research on entry deterrence that only considers a single stage model our main interest is to investigate how the incumbent supplier can strategically maximize her profit by a wholesale pricing policy when facing the potential entrant we focus on a model where the entrant supplier will sell her product through the same incumbent retailer we derive the optimal decisions for each player and study the comparative statics of the equilibrium to investigate how the supply chain structure may affect the deterrence strategy of the incumbent supplier we also consider three alternative models with different channel structures when both suppliers sell their products directly when the entrant has another independent retailer and when the entrant sells her product directly through the comparison we find that the existence of the common downstream retailer often enhances the deterring motivation of the incumbent supplier

trade in producer services and returns due to specialization under monopolistic competition this paper demonstrates that liberalizing trade in services while yielding efficiency gains associated with comparative advantage may yield additional gains for both importing and exporting countries because of an increased division of labor a model is developed in which producer services coordinate and control the specialized members of complex production processes the model is used to analyze trade in services and its effect on the division of labor and the realization of returns from specialization this differs from the recent literature on traded services and specialization because of the explicit role introduced for services in the specialization process

the optimal forest rotation with evolving prices timber is unique among natural resources in that its price shows a long term increasing trend relative to the price of other goods ruttan and callahan 1962 manthy 1978 adams and haynes 1980 in the best known forest econometric model project this trend to continue one explanation for this secular rise in price relates to the virtual mining of the standing stock of old growth mature timber and its positive effect on real stumpage prices hotelling s 1931 theory of the mine postulates that as a stock of nonrenewable re

what do we know about investment under uncertainty recent theoretical developments relating to investment under uncertainty have highlighted the importance of irreversibility for the timing of investment expenditures and their expected returns this has subsequently stimulated a growing empirical literature which examines uncertainty and threshold effects on investment behaviour this paper presents a review of this literature a variety of methods have been used to investigate the empirical implication of irreversibility in investment the majority focusing on the relationship between investment flows and proxy measures of uncertainty a general conclusion is that increased uncertainty at both aggregate and disaggregate levels leads to lower investment rates this suggests that there is an irreversibility effect under which greater uncertainty raises the value of the call option to delay a commitment to investment this effect appears to dominate any positive impact on investment arising from the fact that greater uncertability under certain circumstances increases the marginal profitability of capital the methods used raise a number of issues which call into question the reliability of the findings and these are addressed in the paper however if such irreversibility effects are present then their omission from traditional investment models casts doubt on the efficacy of such specifications jel classification d81 d92 e22

optimal r d investment strategies under the threat of new technology entry abstract this paper studies the r d investment decisions of a firm facing the threat of new technology entry the r d project is subject to technical uncertainty the incumbent can successfully prevent entry by innovating however in an entry deterrence situation the resulting monopoly is different from a monopoly without an entry threat because potential competition means that the monopolist completes the r d project which it otherwise would not have done greater technical uncertainty stimulates initiating exploratory r d and can result in implementation of more expensive research projects this is a result of the limited downside risk of the project it does not matter whether the outcome of an initial r d stage is disappointing or very disappointing since in both cases the firm will simply abandon the project the welfare analysis shows that the threat of entry may reduce welfare in case of entry deterrence